As anyone who practices securities law knows, it is commonplace after the announcement of a merger or acquisition for one or more class-action lawsuits to be filed alleging that the consideration for the transaction is insufficient. In the recent past, these lawsuits were often quickly resolved by means of so-called “disclosure-only” settlements, in which the parties agreed to a broad release of claims against the companies in exchange for limited additional disclosures (often referred to as “supplemental disclosures”) regarding the transaction. Shareholders do not receive any direct economic benefit from these types of settlements; the only money that changes hands is a fee paid to the plaintiffs’ counsel in exchange for obtaining the supplemental disclosures.
Often, the supplemental disclosures do not provide significantly more facts about the deal, but merely provide additional details expanding upon information that was included in the companies’ original disclosures. This led to the question, addressed in In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016), of whether these disclosures provide enough benefits to shareholders to warrant the receipt of fees by plaintiffs’ counsel. According to the Delaware Chancery Court, the answer is dependent on whether the supplemental disclosures are “plainly material,” meaning whether they clearly satisfy the definition of materiality under Delaware law.1 This article highlights several of the key decisions criticizing disclosure-only settlements and considers how the corporate bar may react.
