Expert Analysis of Shareholder Activism Charges in Merger Litigation

The Situation

A publicly traded US cloud services and technology solutions company announced plans to acquire 100% of the shares of a publicly traded Austrian company, one of the largest IT services and technology products providers in Central and Eastern Europe. One of the acquirer’s major shareholders voiced objections to the deal. A court granted a preliminary injunction and a temporary restraining order, stopping the deal from proceeding. Stakeholders challenged the deal based on (1) the target company’s negative cash flow, (2) the use of debt in funding the acquisition, and (3) the perceived political, regulatory, and business risks of acquiring a company operating in Eastern Europe. The acquirer pursued litigation to lift the preliminary injunction and proceed with the proposed tender offer.

NERA's Role

Counsel for the acquirer retained Dr. Jordan Milev to address objections to the proposed merger. Dr. Milev reviewed due diligence documents and financials, and analyzed whether issues raised by the objecting shareholders were an insurmountable obstacle to the proposed acquisition. Dr. Milev provided a detailed analysis of similar M&A transactions involving such issues and formed conclusions based on the empirical data of the transaction at issue and on the performance of similar M&A transactions in the past.

The Result

Dr. Milev filed an affidavit in California state court addressing the stakeholders’ objections to the proposed acquisition. His report covered objections relating to the target company’s negative cash flows, the post-acquisition borrowing level under the proposed financing of the deal, and business risk from operations in Eastern Europe. Subsequently, due to strategic corporate events, the transaction did not materialize.