Go-Shop Period

Definition

The Go-Shop Period is a provision in merger and acquisition deals that allows the target company to seek out competing offers even after a definitive acquisition agreement has been signed. It’s designed to ensure that shareholders get the best possible deal. This period typically lasts for approximately 45-50 days, but the duration can vary depending on the specific agreement.

Phonetic

The phonetic representation of “Go-Shop Period” would be: /ɡoʊ-ʃɒp ˈpɪəriəd/

Key Takeaways

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1. Go-Shop Period is a clause typically included in mergers and acquisitions contracts that allows the selling company to seek out competing offers even after an initial purchase agreement has been reached. This gives the selling company a chance to secure a better deal.
2. During this period, the seller can solicit and negotiate with other potential buyers without breaching the initial agreement. However, if the seller chooses a new buyer, they might have to pay a termination fee to the initial bidder.
3. Go-Shop Period benefits the seller as it promotes a competitive bidding process, potentially leading to a higher selling price. Despite this, it could dissuade some bidders from participating due to the level of uncertainty and potential delays it introduces.

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Importance

The Go-Shop Period is a crucial term in business and finance, as it provides a significant safeguard for companies that are being acquired or merged. This period is typically stipulated in merger agreements, allowing the company being sold a specified timeframe to proactively seek out competing offers from other potential buyers, essentially “shopping around” for the best deal. This process helps ensure that shareholders receive the highest value for their shares, as it often sparks competitive bidding. Additionally, it guards against potential lawsuits from shareholders challenging the fairness of sale price or process, thereby reducing legal risks. Hence, the Go-Shop Period ensures both value maximization and risk minimization.

Explanation

The Go-Shop Period serves as an integral component in the realm of mergers and acquisitions. It’s mainly purposed to ensure a fair and competitive business acquisition process. During this period, shareholders are provided the opportunity to seek out competing offers, ensuring that seller companies get the highest possible offer. Moreover, it minimizes the risk of lawsuit on company directors for failing to meet their fiduciary duty of getting the highest sale price for shareholders.Apart from offering sellers an escape from a potentially bad deal, the Go-Shop Period also greatly benefits buyers. It invites competing bids thereby enabling the buyer to gauge the true worth of their targeted acquisition. This can inform the buyer if they might overpay or whether their offer is appropriate. Therefore, the Go-Shop Period is essentially a provision that guarantees both the buyer and the seller get a fair deal.

Examples

1. Case of Dell Inc: When Michael Dell and Silver Lake Partners presented a take-private offer of $13.65 per share in 2013, a go-shop provision was included in the deal. The clause allowed special committees of the company’s board to solicit other bids for 45 days. After 12 potential acquirers were contacted, Blackstone Group emerged with a higher price per share. Despite this, the initial offer from Dell and Silver Lake succeeded, but the Go-Shop Period ensured that Dell’s board of directors’ fulfilled their obligations to shareholders by seeking for the highest possible offer.2. Case of Whole Foods Market: In 2017, when Amazon announced its plan to buy Whole Foods Market for $42 per share, the agreement included a 30-day Go-Shop Period clause. Whole Foods was allowed to find and entertain other potential bids during this period. However, this did not yield any other offers, and Amazon successfully completed their acquisition, but the inclusion of the Go-Shop Provision ensured that shareholders received the best possible price.3. Case of Life Time Fitness: In March 2015, private equity firms TPG Capital and Leonard Green & Partners decided to acquire Life Time Fitness for $72.10 per share. The deal incorporated a 30-day go-shop period, within which the company could actively solicit alternate proposals. No superior bid was obtained within the decided period, assuring that the initial offer was in the best interest of the company and its stakeholders.

Frequently Asked Questions(FAQ)

Related Finance Terms

• Acquisition Agreement
• No-Shop Clause
• Mergers and Acquisitions (M&A)
• Bidding Process
• Takeover Defensive Measures

Sources for More Information

• Investopedia
• corpgov.law.harvard.edu
• Law Insider
• Wall Street Oasis