Go-Shops Revisited

Guhan   Subramanian; Annie  Zhao

Article | Harvard Law Review | 2019

Go-Shops Revisited

Abstract

A go-shop process turns the traditional M&A deal process on its head: rather than a pre-signing market canvass followed by a post-signing “no shop” period, a go-shop deal involves a limited pre-signing market check, followed by a post-signing “go shop” process to find a higher bidder. A decade ago one of us published the first systematic empirical study of go-shop deals. Contrary to the conventional wisdom at the time, the study found that go-shops could yield a meaningful market check, with a higher bidder appearing 13% of the time during the go-shop period. In this article, we compile a new sample of M&A deals announced between 2010 and 2019. We find that go-shops, in general, are no longer an effective tool for post-signing price discovery. We then document several reasons for this change: the proliferation of first-bidder match rights, the shortening of go-shop windows, CEO conflicts of interest, investment banker effects, and collateral terms that have the effect of tightening the go-shop window. We conclude that the story of the go-shop technology over the past ten years is one of innovation corrupted: transactional planners innovate; the Delaware courts signal qualified acceptance; and then a broader set of practitioners push the technology beyond its breaking point. In view of these developments in transactional practice, we provide recommendations for the Delaware courts and corporate boards of directors.

Keywords: go-shop process; Mergers and Acquisitions; Negotiation Process; Negotiation Deal; Performance Effectiveness; Technological Innovation;

Format: Print

Find at Harvard

Citation:

Subramanian, Guhan, and Annie Zhao. "Go-Shops Revisited." Harvard Law Review 133, no. 4 (February 2020): 1216–1279.

In January 2018, Xerox, a well-known American digital document firm, convened its board of directors to decide whether to approve a merger with Japanese imaging company Fujifilm. Activist Xerox shareholders were suing to halt the transaction, and documents unearthed during the subsequent discovery process revealed that the deal was negotiated by a conflicted CEO. This case study draws from contemporaneous deal documents and unsealed court records to provide a behind-the-scenes look at the deal dynamics. The case raises important issues of deal process design, negotiations, corporate law, and corporate governance.

Faculty & Research

Go-Shops Revisited

Abstract

Citation:

About the Author

More from the Author