Michelle Reed Discusses Shareholder M&A Litigation

Michelle Reed, a partner in Akin Gump’s litigation practice, was quoted in the Agenda article “How to Avoid the ‘Ritual’ of Post-Deal Shareholder Lawsuits,” which addresses the ways corporate boards are approaching shareholder M&A litigation.

According to the article, 95 percent of M&A deals worth more than $100 million were challenged in court last year. Ten years ago, the figure was 39 percent. Some people, however, the article notes, say the adoption of exclusive forum bylaws specifying the legal venue in which shareholders can file a claim have helped decrease the number of lawsuits per deal. The state of Delaware has even endorsed these provisions in legislation.

Reed suggested that in order to avoid shareholder M&A litigation, a deal be overseen by a committee of disinterested directors, who carefully comb through the deal for potential conflicts that shareholders could latch onto. They should also get a fairness opinion from a third party.

“If you reject those, you’re going to face increasing litigation risk and probably higher settlement values,” Reed said. She also recommends that target-company boards pay close attention to ensure deal termination fees are in a reasonable range. If the buyer insists on a non-solicitation provision to the deal, she says, target company boards should make sure the provision doesn’t bar them from accepting a better, unsolicited offer, if one were to come along.

Reed added, “What’s useful to boards is trying to make sure the deal is the most defensible. Obviously, no one likes to be sued. But the reality is everyone knows this is a risk and it’s factored into the cost of doing the deal.”