Hedge funds including Carl Icahn's investment firm, Glazer Capital and Empyrean Capital are taking increasingly prominent roles in shareholder litigation challenging private equity buyouts, using their valuation expertise and financial resources to contest transaction prices and seek potentially higher returns for investors, according to Bloomberg.

The development marks a shift in corporate litigation, with specialist investment managers increasingly leading proposed class actions that have historically been pursued by individual shareholders and pension funds. The cases generally allege that company directors and executives breached their fiduciary duties by approving take-private transactions at prices that undervalued the businesses concerned.

According to an analysis of Delaware Chancery Court filings, hedge funds have brought or attempted to lead proposed class actions challenging at least 11 transactions since 2025. Nine of the 14 cases filed in 2026 involved hedge funds, compared with just one in 2024.

The increased activity follows changes to Delaware corporate law after a number of high-profile companies reconsidered their incorporation arrangements, including Elon Musk's Tesla. The changes have loosened certain deal approval requirements and made it more difficult for shareholders to obtain company records, potentially increasing the value of specialist investors' resources and litigation expertise.

The strategy is developing alongside renewed interest in appraisal arbitrage. Under this approach, hedge funds acquire shares after a takeover announcement and challenge the agreed price in court. If a judge determines that the company's fair value exceeds the transaction price, investors may receive the difference together with accumulated interest. However, the strategy can backfire if the court values the business below the agreed offer.

At least five transactions have faced both class actions and appraisal challenges since 2025, including Silver Lake's $25bn take-private acquisition of Endeavor Group Holdings.

Icahn Enterprises is co-leading a proposed class action relating to Endeavor, while other investors have pursued appraisal proceedings. Silver Lake has challenged the involvement of hedge funds that acquire shares after a transaction announcement, arguing that investors should not be able to use litigation to pursue additional returns while limiting their downside exposure.

The dispute has become increasingly contentious. Silver Lake filed a lawsuit in September accusing Icahn's firm of collusion with certain hedge funds involved in the appraisal proceedings. Icahn's legal representatives have rejected the allegations, describing them as baseless and arguing that they distract from claims concerning the treatment of Endeavor shareholders.

Hedge funds have not secured leadership positions in every case. In litigation concerning 3G Capital's $9.4bn acquisition of Skechers, Empyrean, Verition and other investors failed to become lead plaintiffs. The judge instead appointed Fiduciary Management, which had held shares before the transaction was announced.