What is Go-Shop Period
Go-shop period is a provision that allows a public company to seek out competing offers even after it has already received a firm purchase offer. The original offer then functions as a floor for possible better offers. The duration of a go-shop period is usually about one to two months. Go-shop agreements may give the initial bidder the opportunity to match any better offer the company receives, but normally pay the initial bidder a reduced break fee if the target company is purchased by another firm.
BREAKING DOWN Go-Shop Period
The go-shop period is meant to help the board of directors fulfill its fiduciary duty to shareholders for the best deal possible. In an active mergers and acquisition (M&A) environment it may be reasonable to believe that other bidders may come forward. However, critics say that go-shop periods are cosmetic for the board of directors, designed to give an appearance of acting in the best interests of shareholders but rarely resulting in additional offers because they don't give other potential buyers enough time to perform due diligence on the target company. Historical data has demonstrated that a very small fraction of initial bids are cast aside in favor of new bids during go-shop periods.
Example of Go-Shop Period
In October 2015 Dell Inc. made a $67 billion bid for EMC Corp. The terms of the agreement contained a go-shop provision to allow EMC to solicit other bids for 60 days. The provision also stipulated a two-tier deal termination fee that is common is go-shop provisions. Under the provision, if EMC terminated the deal due to a superior bid, it was supposed to pay Dell $2.5 billion, and if EMC terminated the deal during the go-shop period, the fee would have dropped to $2 billion. After 60 days, in December, the go-shop period expired without another deal.