- M&A litigation is a type of lawsuit that is often brought against the directors and officers of companies involved in mergers. Such requirements are also commonly referred to as “merger objection requirements”.
These situations often lead to litigation as the directors and officers of both the acquiring and the acquired company face a number of conflicts and related obstacles in the event of a merger or similar business transaction. For example, the directors and officers of an acquired company will tend to reject all buyout offers, no matter how beneficial they may be to the shareholders of their company. This is because such persons may lose their jobs as a result of the foreclosure. Similarly, the directors and officers of the acquiring company face the possibility that its own shareholders may claim they have paid too much for the company they have acquired.
Given these (and other) revelations that accompany corporate mergers, almost every decision made by directors and officers in these circumstances can be criticized as an alleged violation of their fiduciary duties.
Accordingly, by 2010, 87.3% of all corporations were satisfied with a merger objection, according to a study by Matthew D. Caine and Steven Davidoff Solomon in the 2014 Takeover Litigation section. In response, directors’ and officers’ liability insurers began adding special, higher withholdings to their forms that only applied to M&A claims. For example, if a policy contains a $100,000 self-insured withholding (SIR), the insurer may impose a $500,000 SIR for merger objection claims.