R&C: Drawing on your recent experience, could you outline the prevailing risks to which directors & officers (D&Os) are frequently exposed in connection with an M&A transaction?

MacCabe: In any M&A transaction, whether you are the seller or acquirer, the prevailing risk for D&Os is misrepresentation or non-disclosure of facts and the subsequent risk of being sued. D&Os involved in an M&A deal have an obligation to ensure that all representations made are accurate. If buyers discover that they have not bought what they thought they were buying and, if warranties are breached, then the D&Os of the selling firm might be held liable. There is also a risk that the shareholders of the acquiring firm could bring a case against its D&Os for mishandling the purchase if there is a subsequent impact on the firm’s share price.

Bentz: In the past, D&Os could rely on the business judgment rule to protect them against M&A cases. This explains why, as recently as 2001, there were only four M&A suits filed. However, this has changed dramatically in recent years. Now, courts are willing to allow myriad claims against D&Os, ranging from breach of fiduciary duty, such as resisting a hostile takeover bid, approving a friendly takeover, pre-acquisition mismanagement, disclosure claims and mismanagement of an acquisition. According to Cornerstone Research, shareholders of public target companies challenged 73 percent of public company M&A deals valued over $100m in 2017. While the majority of M&A deals continue to be the subject of shareholder lawsuits, this is actually a positive trend as the rate of M&A litigation has declined from the peaks seen in 2011 to 2014 when over 90 percent of large M&A deals were challenged.

Oct-Dec 2018 Issue

Beazley Group plc

Holland & Knight LLP

Norton Rose Fulbright LLP