What Is a Go-Shop Period?
Let me explain what a go-shop period is. It's a provision that lets a public company look for competing offers even after they've got a solid purchase offer on the table. That original offer acts as the baseline for any better deals that might come along. Typically, this period lasts about one to two months.
Key Takeaways
You should know that go-shop periods are that window, usually one to two months, where an acquired company can try to find a better deal. These provisions let the initial bidder match any competing offers, and if the company goes with someone else, the original bidder gets a breakup fee. On the flip side, a no-shop provision stops the company from actively shopping the deal around, like sharing info with potential buyers or asking for other proposals.
How a Go-Shop Period Works
A go-shop period is designed to help the board of directors meet their fiduciary duty to shareholders by hunting for the best possible deal. These agreements usually give the initial bidder a chance to match any superior offer that comes in. They also include a reduced breakup fee for the initial bidder if the target ends up selling to another party.
In a busy M&A market, you might think other bidders would jump in, but critics say these periods are just for show, making it look like the board is doing its job. They point out that go-shop periods hardly ever lead to new offers because potential buyers don't get enough time for proper due diligence. Looking at historical data, only a tiny fraction of initial bids get replaced during these periods.
Go-Shop vs. No-Shop
With a go-shop period, the company being acquired can actively shop for a better offer. A no-shop period doesn't allow that at all. If there's a no-shop in place and the company decides to sell to someone else after the offer, they have to pay a big breakup fee.
Take the 2016 Microsoft-LinkedIn deal, where Microsoft was buying LinkedIn for $26.2 billion. Their agreement had a no-shop provision, meaning if LinkedIn found another buyer, they'd owe Microsoft $725 million.
No-shop provisions mean the company can't push the deal to others—they can't share information, start talks, or solicit proposals. But they can still respond to unsolicited offers as part of their fiduciary duty. Most M&A deals stick with no-shop provisions as the standard.
Criticism of Go-Shop Periods
Go-shop periods often show up when the selling company is private and the buyer is something like a private equity firm. They're also getting more common in go-private transactions, like when a public company sells through a leveraged buyout. That said, they rarely bring in another buyer.
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