Exceptions to No Shop
Posted on Apr 09,2018, at 12:16 pm.

 A "no shop" is a covenant in a merger or acquisition agreement that prevents the target company (or seller) from entering into discussions or negotiations and solicitation of competing bids with third parties, for a specific period of time. This common deal-protection device is used by buyers to increase certainty of closing and to protect their investment of time, money and resources. Depending on its language, the no-shop clause can (i) require the target company to stop all discussion with third-party bidders; (ii) prohibit the target company from disclosing information to third-parties regarding a potential competing bid; and (iii) obligate the target company or seller to notify the buyer if it receives unsolicited bids from any third-party.


In general, when the board of directors of a public company agrees to sell the company in a cash deal, the board becomes subject to a heightened duty of care (the "Revlon duty"). This duty requires the board to obtain the highest value reasonably available to the company's stockholders. Thus, even if the directors may negotiate deal-protection mechanisms such as a no-shop, they will have to be able to accept a better deal for stockholders without being subject to an absolute lock-up by the terms of the agreement. As a result, target companies will usually want a fiduciary out and exception to the no-shop that gives them certain rights to review other transactions or intervening events. Some common exceptions to the no-shop are as follows:


  • Window-shop.  A "window shop" provision allows for some degree of third-party negotiation or inquiry. For example, a window shop provision may state that a party cannot solicit other similar transactions; however, that party is not prohibited from hearing out an unsolicited proposal. Alternatively, the provision may also allow the board of directors of a party to shop for a better deal, while giving a right of first refusal if such better deal is received. Window shop provisions usually provide for notice and disclosure of potential "better deals" and either matching or topping rights.


  • Go-shop.  A "go shop" provision permits the seller to solicit bids for a limited time. To address a board of directors’ fiduciary duty and, in some cases, to maximize dollar value for its shareholders, a potential acquirer may request that the target "go shop" for a better deal up front to avoid wasted time and expense. A "go shop" allows both target and acquiring entities to test the market prior to expending resources.


Please note that this article is for informational purposes only and does not constitute legal advice. If you have questions regarding your particular situation, please contact a qualified attorney. 

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