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Corporate mergers yield rise in expensive D&O settlements

Corporate mergers yield rise in expensive D&O settlements

Litigation stemming from mergers and acquisitions is an increasing problem for corporations and their directors and officers liability insurers.

A $146.3 million settlement announced earlier this month by Duke Energy Corp. is the latest in string of high-value settlements related to alleged wrongdoing during M&A deals.

These settlements are “clearly starting to be a significant factor” in the insurance industry, said Kevin LaCroix, an attorney and executive vice president of RT ProExec, a division of R-T Specialty L.L.C. in Beachwood, Ohio.

The settlement by Charlotte, North Caronia-based Duke Energy was of securities class action litigation over the issue of the last minute switch of the company's top executive following a merger.

Plaintiffs in Maurine Nieman et al. v. Duke Energy Corp. charged defendants with making false and misleading statements and material omissions in naming Duke President and CEO James E. Rogers to head Duke immediately after its merger with Raleigh, North Carolina-based Progress Energy Corp., rather than giving Progress CEO William D. Johnson the top job, as had been previously announced.

Other recent large M&A settlements include:

• In December 2014 Phoenix-based Freeport-McMoRan Inc. announced a $137.5 million settlement of a derivative lawsuit in connection with its purchase of two oil and gas companies.

• In November 2014 there was a $275 million settlement of consolidated derivative and class action shareholder litigation over the October 2013 purchase by the Santa Monica California-based video game company, Activision Blizzard Inc., and a shareholder group, of 88% of Paris-based Vivendi S.A.'s shares in the firm.

• In November 2014, New York-based Leucadia National Corp., a diversified holding company, announced a $70 million settlement of class action litigation stemming from its March 2013 acquisition of New York-based investment banking firm Jefferies Group L.L.C.

A total of 93% of M&A deals valued over $100 million were litigated in 2014, which was virtually unchanged from 94% in 2013, according to Boston-based Cornerstone Research.

But in most of that litigation the plaintiffs were only seeking some additional disclosure, and there was a relatively small settlement paid to the plaintiffs law firms “to go away,” said Joseph Monteleone, a partner with law firm Rivkin Radler L.L.P. in Hackensack, New Jersey.

The Duke Energy case is a “wake up call that M&A related litigation doesn't always go away with some quick nuisance value payment to plaintiffs' lawyers,” he said.

Pointing to the other M&A settlements, Mr. LaCroix said M&A-related litigation is now raising both frequency and severity concerns. “A settlement of this magnitude really puts the issue in shock relief,” said Mr. LaCroix.