no-shop

USA

A covenant in a merger or acquisition agreement which restricts the target company from soliciting other potential buyers or, in some cases, participating in discussions relating to a competing transaction. This is a common deal protection device used by buyers to increase the certainty of closing and protect its investment of time, money and resources.

Exceptions to No-shops

In general, the board of directors of a public target company is subject to a heightened duty of care in a merger transaction and is charged with obtaining the highest value reasonably available to stockholders (see Practice Note, Fiduciary Duties of the Board of Directors: Sale of Control (www.practicallaw.com/6-382-1267)). For this reason, target companies typically require a fiduciary out and an exception to the no-shop, which gives them certain rights to review alternate transactions after the merger agreement is signed, such as a:

• window-shop. This exception allows the seller or the target company to discuss and negotiate unsolicited third party offers under certain circumstances. Since public deals include fiduciary outs, they also include window-shop exceptions.

• go-shop. This exception allows the target company to actively seek, discuss and negotiate an alternative transaction with a third party for a specified period of time (usually 30-60 days) after the merger agreement is signed. Go-shops can be used to confirm to the target company (and the buyer) that the target company's board has satisfied its fiduciary duties if it did not have an opportunity to conduct an auction or other market check before signing the agreement.

For more information on no-shops see Practice Notes, No-shops and Their Exceptions (www.practicallaw.com/8-386-1078) and What's Market: No-shop (www.practicallaw.com/8-385-3530).