What is a go-shop period?
A go-shop period permits a public corporation to seek rival proposals after receiving a solid procurement offer. The original offer serves as a floor for better offers. Go-shop periods last one to two months.
Go-Shop Period Functions
A go-shop period helps directors meet their fiduciary obligation to shareholders and discover the best bargain. Go-shop agreements frequently allow the first bidder to match a superior offer from the target firm. If another suitor acquires the target firm, the first bidder receives a reduced breakup fee.
In a busy M&A climate, other bids may emerge. Critics believe go-shop periods are cosmetic, meant to make the board appear to act in shareholders’ best interests. Critics say go-shop periods don’t allow other bidders enough time to research the target firm; therefore, they seldom result in other bids. According to historical statistics, new bids replace a modest percentage of initial offers during go-shop periods.
No-Shop vs. Go
A go-shop period lets the acquired firm compare offers. The no-shop period does not allow for such a choice. A no-shop condition requires the purchased firm to pay a hefty breakup fee if it sells to another company following the offer.
The 2016 LinkedIn acquisition by Microsoft cost $26.2 billion. The two-party draft agreement prohibited shops. Microsoft would want $725 million if LinkedIn found another buyer.
No-shop restrictions prevent the corporation from aggressively shopping the deal, including offering information, talking to purchasers, and soliciting offers. As fiduciaries, organizations can respond to unwanted proposals. No-shop provisions are standard in M&A negotiations.
Go-Shop Period Criticism
A go-shop period occurs when a private company sells to a private equity firm. These deals are gaining popularity in go-private transactions, where a public business sells through a leveraged buyout. A go-shop time seldom brings in another customer.
Conclusion
- Go-shop periods allow an acquired firm to negotiate a better bargain for one to two months.
- Go-shop provisions usually allow the first bidder to match rival bids and receive a breakup fee if the firm is sold.
- A no-shop condition prohibits the corporation from aggressively pursuing the purchase, including contacting buyers and requesting bids.
