Discussion between Gerald Brant and Daniel Zimmerman on Potential Actions for Shareholders in Case of a Failed Merger
In the world of corporate acquisitions, shareholders often find themselves in a vulnerable position, unsure of their rights and options when a merger goes wrong. A recent article, 'Crypto's Merger Problem and What Can Be Done When M&As Go Wrong,' sheds light on this issue, featuring insights from Gump corporate partners Gerald Brant and Daniel Zimmerman.
According to Zimmerman, shareholders cannot halt a merger after it has been completed. However, they can take legal action to prevent an acquisition before it takes place. One such avenue is seeking an injunction, but this must be done before the acquisition has been finalised.
The burden of proof in these legal actions lies with the plaintiffs. They must demonstrate that the merger would be detrimental to them and the company. Zimmerman suggests that shareholders have a better chance of success in cases of reputational harm if they can prove that the directors hid material information during the acquisition.
Brant adds that the amount of scrutiny in an M&A transaction can vary from case to case. Most firms consider the marketing and reputational implications, and whether the two companies are a good fit in terms of corporate culture. However, determining how a merger might reflect on a company's publicly declared values can be tricky.
In cases of mismanagement during a merger, shareholders have the option of legal action. This is viable only when shareholders have a solid case that a merger would be detrimental to them and the company. Zimmerman emphasises that being successful in a claim against a company's directors is made less likely by the difficulty in pointing to an objectively measurable change in the share price and reputational harm following an acquisition.
The shareholders involved in such legal actions are typically the majority shareholders, minority shareholders, and institutional investors. They may take action to prevent or contest reputational damage caused by mismanagement during a merger.
This article serves as a valuable resource for shareholders, providing insights into the legal options available to them in cases of detrimental mergers. It underscores the importance of vigilance and due diligence when it comes to corporate acquisitions.
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