Disclosure-Only Settlements: Not in Delaware’s Backyard

Disclosure-Only Settlements: Not in Delaware’s Backyard

Last month, the Delaware Chancery Court said no to a proposed settlement to a 2014 stockholder class-action suit, which challenged the online real estate database company Zillow, Inc.’s acquisition of its competitor, Trulia, Inc.

In arriving at his decision in In re Trulia, Inc. Stockholder Litigation, Chancellor Andre G. Bouchard cited, among other items, the “mounting evidence that supplemental disclosures rarely yield genuine benefits for the stockholders.” Putting himself in Trulia stockholders’ shoes, he considered the “get” in the form of these supplemental disclosures as not adequate enough to warrant the “give” of providing the release of claims to defendants and affiliates. Chancellor Bouchard also acknowledged the court’s historic predisposition to approving disclosure settlements.

In the ruling, the court also stated that it would not only be “increasingly vigilant” in examining future disclosure-only settlements but that these settlements will be met with “continued disfavor” unless particular requirements are addressed.

In related news, Bloomberg BNA noted that according to Cornerstone Research, “between 2011 and 2014, shareholders challenged over 90 percent of merger and acquisition deals valued over $100 million.” By contrast, those numbers declined last year in Delaware due to the courts’ growing skepticism of disclosure-only agreements. Citing Prof. Lawrence Hamermesh of Widener University-Delaware Law School, Bloomberg added that the Trulia decision would only contribute to the continued reduction in merger objection lawsuits in the state.

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