Following nearly every announcement of a public-company acquisition in the US, including take-private acquisitions by private equity investors, plaintiffs’ law firms file class actions on behalf of shareholders.

These actions are usually based on allegations that the target board of directors breached fiduciary duty (for example, that the directors provided inadequate disclosure to shareholders or have a conflict of interest in the proposed acquisition). The plaintiffs’ law firms commonly ask the court to enjoin the target company’s shareholder vote, often to extract a quick settlement. However, settlements in such cases rarely benefit the shareholders who, in return for dropping all future claims against the target and its board of directors, obtain some limited supplemental disclosure and payment of the plaintiff law firms’ over-sized legal fees (the so-called “disclosure only” settlement).

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