Section 11 Damages and Stock-For-Stock Acquisitions: Legal and Economic Considerations
Damages under Section 11 of the Securities Act of 1933 are calculated using a statutory formula. In many cases, the inputs to that formula are simple to determine and its application is straightforward. That is not always the case, however, when the offering at issue is part of a stock-for-stock acquisition.
In this article, we discuss two issues that can arise in trying to operationalize Section 11's damages formula in the context of a stock-for-stock acquisition. The first is how to determine the amount paid and offering price for securities issued in those acquisitions, which is the starting point for the Section 11 damages calculation. The second is how to calculate Section 11 damages where target company shareholders receive more than one type of security as payment in the acquisition. Both of these questions implicate economic principles, which are particularly informative given the scant case law addressing these subjects. We will close by discussing how these damages issues can impact litigation strategy at multiple phases of the case.