Stockholders dissatisfied with mergers or acquisitions may file a legal action for damages. Defendants may include officers and directors who breached their duty of care by overseeing an unfair merger.
As noted by the Florida Senate website, directors must make business decisions in good faith and in the best interests of shareholders. Mergers, for example, require sound judgment to generate profitability from the newly formed company.
Biased decisions may result in a breach of duty
Before drafting an agreement, officers and directors generally review information and conduct due diligence. Performed on behalf of the corporation’s shareholders, they seek ways to produce a higher return on investment.
Officers and directors owe a duty to perform merger negotiations in the same manner as any ordinary shareholder in a similar position would. If they discuss terms and conditions that benefit themselves at the expense of the company’s shareholders, a breach of fiduciary duty may have occurred.
Stock prices may lead to a legal action
After a merger, shareholders may scrutinize the new company’s stock prices to determine whether the officers and directors performed favorably on their behalf. If the stock performs at a noticeably lower price, shareholders may assert that directors and officers gave inadequate consideration.
In a case recently greenlighted, shareholders may proceed with an action against a major media company’s insiders. The suit alleges an unfair merger process occurred based on a board member’s control over 80% of the voting power. As reported by Nasdaq, the corporation allegedly overpaid for the merger, which consolidated the controlling board member’s holdings in the two companies into one.
Directors making decisions based on their own interests may demonstrate conflicts that result in a breach of their duty of care to non-controlling shareholders. A legal action may result in turning over internal documents used in the decision-making process and disgorging profits.