Shareholder Risk in M&A Transactions: Legal Recourse as a Strategic Tool for Protecting Value

In the high-stakes world of mergers and acquisitions, the specter of undervalued stock treatment looms large for shareholders. While mergers promise strategic synergies and growth, they often mask risks that disproportionately affect minority investors. Class action lawsuits have emerged as a critical tool for shareholders to challenge unfair terms, demand transparency, and secure equitable compensation. Recent cases involving Sonnet BioTherapeutics, Skechers, and First Community Corporation illustrate how legal recourse can serve as both a shield and a sword in corporate transactions.

The Mechanics of Undervaluation: When Mergers Undermine Shareholder Interests

Mergers are inherently complex, but when they involve asymmetric power dynamics—such as controlling shareholders or private equity bidders—the risk of undervaluation spikes. For instance, in Sonnet BioTherapeutics's proposed merger with Rorschach I LLC, shareholders would own just 1% of the combined entity post-transaction. This stark dilution raises red flags, particularly given Sonnet's pipeline of drug candidates and recent positive safety data for its lead compound, SON-1010. Critics argue the merger fails to reflect the company's intrinsic value, a claim amplified by its financial struggles, including a $2.1 million cash balance as of March 2025 and a recent $2.0 million private placement.

Similarly, Skechers' 2025 merger with 3G Capital's Beach Acquisitions Co Parent has drawn scrutiny for offering $63–$57 per share, a 20% discount to its 52-week high of $78.82. The Greenberg family, which controls 60% of Skechers' voting power, faces allegations of manipulating the sales process to favor 3G Capital, potentially sidelining minority shareholders. A shareholder lawsuit led by the Florida-based Key West Police Officers & Firefighters Retirement Plan highlighted the lack of SEC filings and transparency, though a federal judge denied a preliminary injunction in July 2025.

For First Community Corporation's acquisition of Signature Bank of Georgia, the all-stock exchange ratio of 0.6410 FCCO shares per Signature Bank share has sparked debates about fairness. With FCCO's stock price fluctuating and no pro forma financial metrics disclosed, investors struggle to assess whether the deal benefits Signature shareholders. The involvement of law firm Halper Sadeh LLC in investigating fiduciary breaches underscores the legal complexities of such transactions.

Legal Recourse: A Strategic Defense for Shareholders

Class action lawsuits are not merely reactive; they are strategic tools for investors to assert rights and influence outcomes. In the Sonnet case, Monteverde & Associates PC is probing whether the merger's terms constitute material misrepresentations or omissions. The firm's track record—recovering millions for shareholders in past cases—adds weight to its current investigation. Shareholders are encouraged to act swiftly, as legal deadlines loom and the firm offers free consultations.

In the Skechers case, the lawsuit's focus on procedural fairness—such as the lack of competitive bidding—resonates with broader themes of corporate governance. Even though the court denied the injunction, the litigation has forced Skechers to defend its disclosures and justify the merger's structure. This scrutiny can delay or reshape the transaction, potentially improving terms for shareholders.

For First Community, the absence of detailed financial projections in the S-4 filing has left investors in the dark. Class action firms like Halper Sadeh LLC are leveraging fiduciary duty claims to push for greater transparency, arguing that the board failed to secure optimal consideration for Signature shareholders. Such legal pressure can lead to renegotiations or even the termination of deals that fail to meet fair valuation standards.

Investment Advice: Navigating M&A Risks with Legal Awareness

For investors, the key takeaway is clear: legal recourse is not a last resort but a proactive strategy. When evaluating mergers, consider the following:
1. Scrutinize Exchange Ratios: In all-stock deals, volatility in the acquiring company's stock can drastically affect value. For example, if FCCO's stock dips before the First Community-Signature Bank merger closes, the exchange ratio becomes less attractive.
2. Demand Transparency: The absence of pro forma financials, as seen in the Signature Bank case, signals a lack of investor-centric disclosures. Shareholders should advocate for detailed metrics to assess synergy benefits or dilution risks.
3. Leverage Legal Expertise: Firms like Monteverde & Associates PC specialize in securities litigation and can help shareholders evaluate merger terms. Their involvement often forces companies to justify valuations in court, potentially leading to better outcomes.

Conclusion: The Power of Accountability in M&A

Mergers are rarely neutral events; they are battlegrounds where corporate power and investor rights intersect. The cases of Sonnet, Skechers, and First Community demonstrate that class action lawsuits are not just legal formalities—they are instruments of accountability. By challenging undervaluation, shareholders can compel boards to act in their best interests, ensuring that mergers deliver fair returns rather than eroding long-term value. In an era where corporate governance is under heightened scrutiny, legal recourse remains a vital tool for investors to safeguard their stakes.

For those holding shares in companies undergoing mergers, the message is unambiguous: act early, act decisively, and let the law serve as your ally.