"Go-Shop" Provisions in Acquisition Agreements

Bill Sjostrom —  27 March 2006

A standard provision of an acquisition agreement is a “no-shop/no-talk.â€? Under this provision, the target company contractually agrees with the buyer not to solicit or talk to other buyers, even if unsolicited, regarding making a superior bid. A no-shop/no-talk is designed to protect the buyer against another buyer stealing the deal. However, the provision is generally coupled with a “fiduciary-out,â€? which allows the target company to communicate with other potential buyers if the board determines that such discussions are required by the board’s fiduciary duties to the target’s shareholders. This is how Guidant was able to talk to Boston Scientific notwithstanding Guidant’s deal with J&J.

Yesterday’s NYT has an article about “go shop� provisions in acquisition agreements (click here). As the name implies, instead of prohibiting a target from soliciting and talking to other potential buyers, a “go shop� explicitly allows just that. The article reports that six deals over the last year have included go-shops, including Maytag’s initial deal with a private equity firm Ripplewood Holdings (see below the fold for the go-shop provision from the Maytag/Ripplewood deal).

According to the article:

IF you’re wondering why the first suitor would ever agree to a go-shop provision, the breakup fee may be part of it. Nobody buys a business to get a breakup fee, but the option does provide buyers with some comfort, covering their costs and then some if they end up losing the deal.

More important, buyers often have no choice. A seller can easily say: either take the deal with a go-shop provision or submit to an open auction. And, of course, there’s no evidence so far that any would-be buyer would choose the auction route.

[“Go-shop� provision from Maytag/Ripplewood deal. Whirlpool later emerged with a superior bid, and the deal was terminated.]

SECTION 5.02. NO SOLICITATION. (a) During the period beginning on the date of this Agreement [5/19/05] and continuing until 12:01 a.m. (EST) on June 18, 2005(the “SOLICITATION PERIOD END DATE”), the Company and any officer, director or employee of, or any investment banker, attorney or other advisor or representative (collectively, “REPRESENTATIVES”) of, the Company or any Company Subsidiary shall be permitted to (i) directly or indirectly solicit, initiate or encourage the submission of a Company Takeover Proposal and (ii) directly or indirectly participate in discussions or negotiations regarding, and furnish to any person information with respect to, and take any other action to facilitate any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, a Company Takeover Proposal; PROVIDED, HOWEVER, that (A) the Company shall not, nor shall it authorize or permit any Company Subsidiary to, nor shall it authorize or permit any Representative of the Company or any Company Subsidiary to, provide to any person any non-public information (other than any immaterial non-public information) with respect to the Company or any Company Subsidiary without first entering into a customary confidentiality agreement with such person that is not less restrictive of the other party than the Confidentiality Agreement (excluding the provisions of the eleventh paragraph thereof) and (B) the Company shall promptly provide to Parent any non-public information concerning the Company or any Company Subsidiary that is provided to such person or its Representatives which was not previously provided to Parent.

3 responses to "Go-Shop" Provisions in Acquisition Agreements


    I haven’t seen this used, but it’s an interesting strategy to buy someone on the cheap (i.e., avoid prolonged bidding with the board by telling them to shop) if you were confident that no one else was out there. Then, when no other offer emerges, both the board and buyer can justify the price (although the board might be challenged for selling the company at an unfair price).

Trackbacks and Pingbacks:

  1. The Harvard Law School Corporate Governance Blog » Go-Shops With Matching Rights--and Reimbursing Topping Bidders - May 21, 2007

    […] Widener Law School, precipitated by Mark’s ruminations about sellers’ insistence that a go-shop provision with a matching right in a merger agreement be accompanied by a right to reimburse the expenses of […]

  2. TRUTH ON THE MARKET » HCA Deal has “go shop” provision - July 25, 2006

    […] I took a quick look at the HCA merger agreement to see whether any provisions would catch my eye. One did. The agreement contains a “go shop” provision (see earlier discussion of “go shops” here). Until 11:59 p.m. (EST) on September 12, 2006, HCA is free to solicit competing bids (see Section 7.4). […]