What Is a Go-Shop Clause?

Question from d, What Is a Go-Shop Clause?

Answer from AI:

A go-shop clause is a provision in a merger or acquisition agreement that allows the target company to seek out alternative acquisition proposals for a limited period after signing the initial agreement. This clause is designed to ensure that the target company’s shareholders receive the best possible deal by allowing the company to solicit and consider other offers even after agreeing to a merger or acquisition with a specific buyer.

General Structure of a Go-Shop Clause

A go-shop clause typically includes the following elements:

• Go-Shop Period: A defined time frame during which the target company can actively seek and consider other proposals.
• Solicitation Rights: The rights and limitations of the target company to solicit and entertain other offers.
• Fiduciary Out: A provision that allows the target company’s board of directors to consider and accept a superior proposal in the best interest of the shareholders, subject to certain conditions.
• Matching Rights: The initial buyer’s right to match any superior proposal received by the target company during the go-shop period.
• Break-Up Fees: Fees that may be payable to the initial buyer if the target company terminates the agreement to accept a superior proposal.

Example of a Go-Shop Clause

Please note that the following is a simplified example of a go-shop clause for illustrative purposes only. It is essential to consult with a legal professional to draft a clause that is appropriate for the specific circumstances and jurisdiction.

Go-Shop Clause

1. Go-Shop Period. The Company shall have the right, for a period of [insert number of days] days following the execution of this Agreement (the “Go-Shop Period”), to initiate, solicit, and encourage Acquisition Proposals (as defined below) from third parties and to engage in discussions and negotiations with third parties regarding Acquisition Proposals.
2. Acquisition Proposals. For purposes of this Agreement, “Acquisition Proposal” shall mean any inquiry, proposal, or offer from any person or entity other than the Buyer, relating to any direct or indirect acquisition or purchase of 20% or more of the assets or equity interests of the Company or any business combination with the Company.
3. Fiduciary Out. Notwithstanding anything to the contrary in this Agreement, the Board of Directors of the Company may, during the Go-Shop Period, provide information to and participate in discussions or negotiations with any person or entity that makes a bona fide written Acquisition Proposal that the Board of Directors, in its good faith judgment, after consultation with its financial advisor and outside legal counsel, determines is or is reasonably likely to lead to a Superior Proposal (as defined below).
4. Matching Rights. The Company shall promptly (within 24 hours) provide the Buyer with any Acquisition Proposal received during the Go-Shop Period. The Buyer shall have the right, but not the obligation, to match or exceed any Superior Proposal within [insert number of days] days after being notified of such proposal.
5. Break-Up Fee. If the Company terminates this Agreement to enter into an agreement with respect to a Superior Proposal, the Company shall pay the Buyer a one-time termination fee of [insert amount or percentage of the transaction value].

Legal Considerations and Advice

Drafting a go-shop clause involves complex legal considerations and should be tailored to the specific transaction and legal jurisdiction. It is crucial to ensure that the clause complies with relevant securities laws and regulations, and aligns with the fiduciary duties of the target company’s board of directors.

For personalized advice and to ensure that a go-shop clause is appropriately drafted, it is highly recommended to consult with a legal professional who specializes in mergers and acquisitions. Legal counsel can provide guidance on the structure of the clause, negotiation strategies, and compliance with applicable laws.

For more information on mergers and acquisitions, you may refer to resources such as the U.S. Securities and Exchange Commission or the Harvard Law School Forum on Corporate Governance.