Divided Loyalties? The Role of Defense Litigation Counsel in Shareholder M&A Litigation

We examine the role of defense litigation counsel in mergers and acquisition (M&A) litigation. We theorize that defense litigation counsel may be incentivized to settle litigation on disadvantageous terms to shareholders in order to allow transactions to complete, and that more experienced counsel will engage in this conduct at a greater rate. We find that top defense litigation counsel is more likely to be hired to complete transactions priced at lower takeover premiums. We control for endogeneity and find evidence that top defense litigation counsel negotiate cheaper and faster settlements than other defense litigation counsel, particularly when the transactions involved have lower offer premiums, and that top defense litigation counsel take advantage of multi-jurisdictional litigation to achieve this result. Our results support the conclusion that top defense litigation counsel in M&A litigation may be adept at settling valid claims in order to allow for deal completion. Finally, we discuss the implications of forum selection bylaws and the near demise of disclosure-only settlements for top defense litigation counsel, and argue that these changes may reduce competitive advantages that these law firms previously enjoyed.