Go Shop Period

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Definition: Go Shop Period

During a merger or an acquisition, the target firm has an option to find better price from another firm for the offer. This is possible only for a fixed time period after the original offer. This period is known as the “Go- Shop Period”. In case of a better offer price, then the company has an option to take up the new offer instead of the original offer.


The go- shop provision makes the original offer a floor price for the company and offers above this would be considered for negotiations.


Advantages:

• The target of any management of a firm is to maximize the shareholder’s wealth. With the help of this provision, this target can be achieved

• Competition for the original offer would bring in better offers increasing the possibility of obtaining a higher bid

• The initial deal is fixed without any risk to reputation of the company

• Instead of an auction, a one- on- one negotiation results in spending less time and money. An auction does not guarantee an offer

• There is already an offer in hand and a better offer being solicited is an advantage to the target firm

There were recent merger deals such as Lear and Dell where the firms have utilized the Go- Shop provision.


Procedure:

• The target firms have a right to obtain better offers during the go- shop period if the original buyer agrees for this provision

• The Go- Shop period is usually between 20 to 50 days from the day of signing the agreement with the original offer price

• They can exchange information with potential bidders only after they sign a confidentiality agreement similar to the one signed by the original bidder

• After this period expires, the company has to follow the “No Shop” clause which prohibits the target firm from acquiring better offer price

• If a potential buyer has shown interest in offering a better price before the go- shop period expires, this negotiation can carry on even after the period expires

• In case a better offer has been solicited, then the original buyer is offered a ‘Break- Up fee’ or termination fee to release the target firm from the original obligation

The only argument against this provision is that the potential buyers do not find enough time to perform due diligence about the target firm and hence, new offers for the merger would be less.

 

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