Money and Banking

In: Business and Management

Submitted By ksmeyer
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1. Under what circumstances, if any, is signing a merger or acquisition agreement with a go-shop clause an effective substitute for a pre-signing market check by the seller? 2.
Under Revlon duties, directors are expected to take steps to obtain the best transaction reasonably available for the stakeholders. The Delaware Supreme Court has stated, “there is no single blueprint that a board must follow to fulfill its [Revlon] duties” (citation). After the Smurfit-Stone case, it became clear that board did not need to do a pre-signing market check to fulfill their fiduciary duties. Therefore, “go-shop” provisions have been used more often in place of pre-market checks. Go-shop clauses are a provision that allows the target company to solicit competing proposals for a certain amount of time after they have signed an agreement with the potential buyer. The advantages of the “go-shop” are that it decreases the amount of time until closing as the agreement is already in place, sets a “floor value” which the seller can canvass the market, and provides a “break-up” fee to the potential buyer if they are outbid. The seller usually has a bifurcated fee structure with a lower termination fee payable through the go-shop clause. If there is a reduced termination fee, it may generate more interest than a “no-shop” provision, and potentially more offers.
From the seller’s perspective, a go-shop clause may be favored if there are risks during an auction such as lower than expected price or no bids which may have a negative effect on market value. By using a go-shop, the firm can avoid the delay that may take place with the pre-signing market check as the deal can still move forward as the seller “shops” around. Additional business reasons supporting go shops include the impact on its employees and their reactions, the loss of customers as they await a transaction to…...

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