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"No-Shop" and "Go-Shop" provisions are terms related to mergers and acquisitions (M&A). They are clauses included in agreements between companies involved in a potential merger or acquisition, and they dictate how the parties can negotiate with third parties during the deal process.

No-Shop Provision Example

Scenario: Company A (Buyer) is interested in acquiring Company B (Target).
Negotiation Phase: Company A presents an offer to acquire Company B. Both companies agree to enter exclusive negotiations.
No-Shop Provision: The agreement includes a No-Shop provision that prohibits Company B from soliciting, initiating, or discussing acquisition proposals with other potential buyers for 60 days.
Outcome: Company B is legally bound not to engage in talks with other buyers during this period, allowing Company A to conduct due diligence and finalize the acquisition terms without the risk of a bidding war.

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The text of the No-Shop provision (please do not consider it as a legal advice)

Section XX: No-Shop Clause

1. Exclusivity: For a period of sixty (60) days from the execution of this Agreement ("Exclusivity Period"), the Target Company agrees not to, directly or indirectly, initiate, solicit, encourage, or engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person, or other entity or group (other than the Buyer and its authorized agents) regarding any proposal or offer to acquire all or any part of the assets, or any equity interests, of the Target Company (a "Third Party Proposal").

2. Notification of Third Party Proposals: The Target Company shall notify the Buyer immediately upon receipt of any Third Party Proposal or any request for information or inquiry that could reasonably be expected to lead to a Third Party Proposal. Such notification shall include the identity of the third party and the terms and conditions of such proposal, request, or inquiry.

3. Cessation of Existing Discussions: The Target Company hereby agrees to immediately cease any existing discussions or negotiations with any third parties conducted heretofore with respect to any Third Party Proposal.?

4. Fiduciary Out: Notwithstanding the foregoing, the Board of Directors of the Target Company may, in response to a bona fide unsolicited Third Party Proposal that the Board determines in good faith, after consultation with its financial advisor and outside legal counsel, is likely to lead to a Superior Proposal, engage in discussions or negotiations with, and provide non-public information to, such third party, subject to confidentiality agreements no less restrictive than those contained herein.

"Superior Proposal" is defined as a bona fide written offer by a third party to acquire all of the equity interests or all or substantially all of the assets of the Target Company on terms that the Board of Directors of the Target Company determines in its good faith judgment (after consultation with its financial advisor and outside legal counsel), taking into account all legal, financial, regulatory, and other aspects of the proposal and the proposed acquirer, to be more favorable to the Target Company's shareholders than the transaction contemplated by this Agreement.

This section shall expire upon the termination of this Agreement.

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No-Shop Provision overview

1.???? Definition: A No-Shop provision, also known as an exclusivity clause, prohibits the target company in a merger or acquisition from soliciting, initiating, or engaging in discussions with other potential buyers for a specified period. This provision is designed to give the original buyer a degree of certainty that they will have exclusive rights to negotiate with the target company.

2.???? Purpose: Its main purpose is to protect the interests of the prospective buyer by ensuring that the seller does not shop the company around to other potential buyers once negotiations have started.

3.???? Duration: The duration of a No-Shop clause is typically limited and is negotiated between the parties. It often lasts from the signing of the letter of intent until the transaction is either completed or terminated.

4.???? Fiduciary Out: Sometimes, a No-Shop clause includes a "fiduciary out" provision. This allows the target company's board to consider unsolicited offers if failing to do so would breach their fiduciary duty to the shareholders.

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Go-Shop Provision Example

Scenario: Company C (Buyer) proposes to acquire Company D (Target).
Initial Agreement: Company C and Company D sign an agreement with a Go-Shop clause, allowing Company D to seek other offers for 45 days.
Go-Shop Phase: During this period, Company D actively seeks and receives two other acquisition offers, one of which is higher than Company C's original offer.
Decision Point: After the Go-Shop period ends, Company D can either proceed with the original deal with Company C, renegotiate terms with Company C, or accept the higher offer from another buyer. If Company D accepts another offer, it might have to pay a break-up fee to Company C.

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The text of the Go-Shop provision (please do not consider it as a legal advice)

Section XX: Go-Shop Clause

1. Go-Shop Period: For a period of forty-five (45) days from the date of this Agreement ("Go-Shop Period"), the Target Company shall have the right, directly or indirectly, to initiate, solicit, and encourage inquiries, proposals, or offers from third parties relating to alternative acquisition transactions ("Alternative Acquisition Proposals"), including by providing information and engaging in discussions or negotiations with third parties regarding such Alternative Acquisition Proposals.

2. Notification to Buyer: The Target Company agrees to promptly (and in any event within twenty-four (24) hours) notify the Buyer orally and in writing of any Alternative Acquisition Proposal or any inquiry, proposal, or offer that could reasonably be expected to lead to an Alternative Acquisition Proposal. Such notice shall include the identity of the third party and material terms and conditions of such proposal, inquiry, or offer.

3. Buyer's Right to Match: The Target Company shall provide the Buyer with a three (3) business day period to match or improve upon any Alternative Acquisition Proposal deemed by the Target Company's Board of Directors to be superior to the transaction contemplated by this Agreement.

4. Termination Fee: In the event that the Target Company accepts a Superior Proposal from a third party during the Go-Shop Period, the Target Company agrees to pay the Buyer a termination fee of [SPECIFY AMOUNT OR PERCENTAGE OF TRANSACTION VALUE], which fee shall be payable upon termination of this Agreement in favor of such Superior Proposal.

5. No-Shop Provision: Upon expiration of the Go-Shop Period, the Target Company agrees to be bound by a No-Shop Provision as outlined in Section [XX] of this Agreement, subject to the same terms and conditions set forth therein.

This section shall expire upon the termination of this Agreement.

Go-Shop Provision overview

1.???? Definition: A Go-Shop provision, in contrast, allows the target company to actively seek out alternative proposals from other potential buyers for a limited period, even after they have signed an agreement with the initial buyer.

2.???? Purpose: This provision is often used to demonstrate to shareholders and regulators that the target company's board has taken steps to ensure they are receiving the best possible deal. It's a way to counter potential criticism that the board did not explore all options.

3.???? Duration: The Go-Shop period is also limited in time, typically ranging from 20 to 60 days. After this period, a No-Shop provision often comes into effect.

4.???? Break-Up Fee: Go-Shop provisions may also be associated with a break-up fee. This fee is payable to the initial buyer if the target company eventually accepts an offer from another party. The presence of a break-up fee can deter other potential buyers, as it increases the cost of acquiring the company.

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Strategic Implications

In Negotiations: The presence or absence of these provisions can significantly influence the dynamics of M&A negotiations. They can affect the bargaining power of each party and the overall likelihood of the transaction's success.
For Shareholders: For the shareholders of the target company, these provisions are important as they can impact the value they receive from the deal. A Go-Shop provision ensures that the board seeks the best offer, while a No-Shop provision can expedite the process and reduce uncertainties.
Regulatory Considerations: These provisions can also be important from a regulatory perspective, as they can impact how the deal is perceived by regulators and whether it meets fiduciary duty requirements.

In conclusion, No-Shop and Go-Shop provisions are strategic tools in M&A transactions, each serving different purposes. While No-Shop provisions provide deal certainty to the buyer, Go-Shop provisions allow the seller to ensure they are getting the best possible deal. The choice between them depends on the specific circumstances of the transaction and the negotiating power of the involved parties.

Also check the previous series of posts!

Part 1 - Corporate Takeover

Part 2 - Traditional Merger vs. Tender Offer

Part 3 - Hostile Takeover

Part 4 - Horizontal Integration

Part 5 - Vertical Integration

Part 6 - Reverse Merger

Part 7 - Conglomerate Merger

Part 8 - Divestitures

Part 9 - Spin-Off

Part 10: Forward Integration

Part 11: Backwards Integration