A go-shop period is a provision in the merger agreement that allows the target company to solicit competing offers even after it has already received and, or agreed to a firm offer from the acquirer. The original offer then functions as a floor price for potentially superior offers. The duration of a go-shop period is usually 30 days although periods of 35 days and 40 days are also used.
Enacting The Right
Reasons for Target Company to Favor a Go-Shop
A target company may prefer the imposition of go-shop period as it clearly highlights the fulfilment of fiduciary duty by the board of diretors. This action may be more difficult in the case of an auction sale. The possibility of confidential information leaks may be difficult to prohibit and thus impede the efficient sale of the company.
Reasons for an Acquirer to Agree to a Go-Shop
Acquirers may agree to a go-shop period if it helps avoid the delay of an auction or pre-signing market check. The go-shop period can continue whilst other issues are resolved. The acquirer already knows it has an advantage over competing bidders, who must offer a price that is higher than the aggregate amount of the current offer. There is also the cost of the break up fee to factor into any competing bid.
Go-Shop Example
Go-Shop; Non-Solicit For the first 45 days following the signing of the Merger Agreement (the “Go-Shop Period”), TCO will be permitted to solicit, propose, encourage or facilitate competing bids and negotiate competing Acquisition Proposals (as defined in the Merger Agreement), subject to certain information and matching rights of Simon. Subject to certain exceptions, at the conclusion of the Go-Shop Period, TCO has agreed not to (i) solicit, initiate or propose the making or submission of, or knowingly encourage or facilitate the making or submission of, any offer or proposal that constitutes or would reasonably be expected to lead to an Acquisition Proposal; (ii) furnish to any person access to the business, properties, assets, books, records or other non-public information, or to any personnel, of TCO or any of its subsidiaries, in any such case with the intent to induce the making or submission of, or to knowingly encourage, facilitate or assist, an Acquisition Proposal; (iii) participate, facilitate or engage in discussions or negotiations with any person with respect to an Acquisition Proposal or any offer, proposal or inquiry that would reasonably be expected to lead to an Acquisition Proposal; (iv) enter into any letter of intent, memorandum of understanding, agreement in principle, investment agreement, merger agreement, acquisition agreement or other contract relating to an Acquisition Transaction (as defined in the Merger Agreement) or that would reasonably be expected to lead to an Acquisition Proposal; or (v) reimburse or agree to reimburse the expenses of any other person in connection with an Acquisition Proposal or any inquiry, discussion, offer or request that would reasonably be expected to lead to an Acquisition Proposal. In this document, appraisal rights are clearly stated and it is shown where shareholders can obtain more information. DGCL is the most common set of rules followed as the majority of public firms are incorporated there and also serves as a guide to other states.
