Thursday, June 3, 2010
Since the beginning of the year there have been 15 announced transactions that include go-shop provisions. The go-shop is a creature of the last PE bubble that arose to address a perceived fiduciary challenge: Can a board meet its obligations under Revlon without conducting a pre-signing market check? The go-shop gets around that by permitting a board to essentially attempt to run a post-signing auction. One might have thought that following Lyondell that a board would worry less about perceived risks of running afoul of Revlon, but that doesn't seem to be the case. The persistence of the go-shop provision in merger agreement post-bubble suggests that seller's counsel are making fiduciary duty arguments in negotiations and they are winning them.
There's also some evidence that go-shops have now "crossed over" to the strategic side. Whereas during the bubble, go-shops were used almost exclusively when PE buyers were on the scene that has changed dramatically. Of the 15 transactions with go-shops announced this year, 9 of them can be found in transactions with strategic buyers. This is interesting. I'm going to think about it some more, but I'm wondering whether the shift from financial buyers (common value bidders) to strategic buyers (private value bidders) means anything with respect to the likelihood that a second bidder will want to put in a topping bid.