Takeover Litigation: the US does it more than the UK, but why and does it matter?

Abstract

This thesis begins by describing the regulatory regimes of takeovers in the UK and US, and maps the litigation landscapes of both jurisdictions. In order to first map or describe the litigation landscapes, data was collected to reveal the extent of the UK’s propensity to litigate during takeovers. Although data ascertaining takeover litigation levels existed in the US no current study had yet established the levels in the UK. It is revealed that in the US 87 percent of takeovers are subject to litigation, whilst in the UK the figure is less than one percent. Current literature has not yet attempted to explain exactly why the US and UK differ so widely, considering their very similar market systems. The focus of this thesis is then to explain this difference and debunk some of the more obvious presumed explanations (i.e. “the US is just more aggressively litigious”) and identify some lesser known reasons. As the main instigators of US litigation are target shareholders alleging their directors have breached a fiduciary duty a number of explanations inevitably arise from this particular scenario. A simplistic uni-causal explanation is therefore rejected and instead this thesis offers four candidates for explaining the disparity. These are, firstly, that US shareholders benefit from more extensive “causes of action.” The second explanation encompasses the different “forms of action” that are available to shareholders in the UK and US to pursue these causes of action; in the US the class action is the favoured form whereas in the UK shareholders are limited to the derivative claim. The third explanation concerns the role played by the existence of the Code, and its administration by the Panel. It is argued that these UK institutions do much to suppress takeover litigation in general. The fourth and final explanation is the rather amorphous concept of “litigation culture.” Finally, the impacts of the diverging propensities to litigate on factors such as cost and speed on the takeover process are then evaluated.