Mergers and Acquisitions Litigation

Protecting Shareholders in Mergers and Buyouts

When a company agrees to a merger or to an acquisition, your interests as a shareholder are at stake. Your ownership interest in the company will be affected by the merger or acquisition. For example, the company you own may cease to exist entirely. After the transaction, you may own shares in a new company. Or your ownership interest may be diluted by the newly acquired entity.

Sometimes a potential deal, or “tender offer,” may be in shareholders’ best interests, but company management refuses the deal, and will label it “hostile.”

As a shareholder, you should pay attention to the merger or acquisition terms. You need to ensure the transaction is in your best interests and in the best interests of public shareholders, because once the deal goes through, it is nearly impossible to unwind.

Pay close attention whether your ownership interest is impaired by a deal that is not in your best interests. Similarly, shareholders need to evaluate potential offers that management rejects as hostile or insufficient.

If you need assistance in reviewing or analyzing a potential tender, merger or acquisition, or if you have questions or concerns about a potential deal and how it impacts you and your fellow shareholders, please contact us.

Doyle Lowther has the knowledge and experience to assist shareholders like you in analyzing and evaluating mergers, acquisitions, and similar transactions affecting public companies.

Shareholder Rights and Remedies

As a shareholder you have legal rights and remedies when a merger or acquisition arises. You are entitled to be treated fairly and equitably. Shareholders have a right to full and complete disclosure about the deal, including its terms, its economic and financial impact, and disclosure about how corporate insiders will benefit.

You also have a right to notice about shareholder meetings, shareholder votes, and similar disclosures. Generally, the company is required to hold a shareholder vote before a merger, acquisition, or buyout may take place.

Officers and directors owe you the highest duties of good faith and fair dealing when they negotiate a merger or acquisition. Corporate management cannot put their interest ahead of your rights as a shareholder. The board of directors must do what is in the best interests of the company and its shareholders.

Management-Led or Insider Buyouts

Sometimes officers and directors will attempt a management-led buyout, a leveraged buyout, or an insider buyout. With an insider-led buyout, corporate insiders may seek to terminate your shareholder ownership interest entirely, forcing you to accept cash in exchange for forcibly retiring your shares.

Shareholders need to carefully evaluate leveraged, insider, or management-led buyouts. Such transactions often extinguish your ownership interest in the company, leaving the company in the hands of insiders and management.

Board Approval

While shareholders are entitled to vote on a merger or acquisition, the deal first requires board approval. Before approving a transaction, officers and directors must act in the best interest of their company. Often officers and directors have financial interests in the outcome of the deal that conflict with the interest of the company and its owners. Shareholders, for the most part, seek to maximize the value of their shares.

Golden Parachutes and Change In Control Payments

Officers and directors may have payout provisions that generate large payouts if the company is sold. A change in control provision, contained in executives’ contracts, may accelerate payoffs to corporate insiders, including accelerated option vesting, stock and option grants, bonus and continued salary payoffs, and similar golden parachute provisions that give corporate insiders millions of dollars if the deal goes through.

Questions arise whether the officers and directors agreed to the deal for their own benefit instead of the company and its shareholders.

Fairness Opinions

Above all, a potential tender, merger, or acquisition must be fair to shareholders. The company board may hire financial advisors or investment bankers to solicit offers, evaluate potential deals, explore strategic opportunities, and opine on a potential tender, merger, or acquisition. Bankers and financial advisors may be called upon by the board to evaluate the fairness of the proposed deal.

The bankers will issue what is known as a fairness opinion, informing the board and shareholders whether the proposed deal is fair, from a financial point-of-view. Bankers and financial advisors almost always earn a large fee for providing a fairness opinion. In some cases, the bankers’ fee is contingent on the deal being completed. This may raise appropriate questions about the bankers’ objectivity and the fairness opinion’s validity.

If you have questions about a fairness opinion, or are concerned whether a potential transaction is fair, please contact us.