Counsel to Counsel - November 2008 - (Page 14) in the spotlight © Sufi70 | Dreamstime.com takeovers: rise of the go-shop Clause By Steven Andersen t he trend that has developed in recent years toward “go-shop” clauses in takeover agreements is accelerating—nearly a third of all takeovers now rely on them. For in-house counsel who find their company on either side of a takeover bid, understanding the nuances of the go-shop clause has become essential. “Success or failure in negotiating the terms of a go-shop clause can mean the difference between maximizing the sale price and protecting your senior management and board—or not,” cautions Nicholas Unkovic, a partner at Squire, Sanders & Dempsey L.L.P. “Going back 20 years to the Revlon decision, the Delaware courts ruled that when a company is in play, the fiduciary duty shifts to a duty to maximize the sale price,” Unkovic explains. “That’s not an absolute standard. The board can take into consideration factors such as terms, cash versus stock and the ability of the bidder to close. So it’s not just a highest-bidder situation. But in a takeover transaction the focus clearly shifts to maximizing value.” In negotiated acquisitions, that issue has since been addressed by a no-shop clause with a fiduciary out. That, in essence, is a definitive agreement to sell the company with the qualification that it can entertain unsolicited third-party offers even after an agreement is signed. But to get to a viable no-shop position, the company must accurately gauge its market value—a problematic process. On one hand, the company can conduct a market check in which a small number of potential buyers are approached subject to a confidentiality agreement—a process that may overlook higher bidders. On the other hand, it could in essence auction the company. That has a downside, too. When the whole world knows you are for sale, it tends to jeopardize customer, employee and supplier relations and can drive down the price. In the last few years, that conundrum has led to a creative solution. “A go-shop clause flips the process on its head,” Unkovic says. “The company signs a definitive agreement before it has engaged in an auction or market check, but is authorized to then go out and market itself.” This process can be attractive both to the buyer and seller. The seller starts with a binding sale agreement and has much greater latitude to pursue higher bidders within a specified time frame. The buyer, meanwhile, is protected by a bust-up fee that usually The Process Flipped Under Delaware corporate law, the board of directors has a fiduciary duty to shareholders that historically has focused on the longterm planning and stability of the company. A key case in the heyday of the corporate raider changed that. 14 LexisNexis® Martindale-Hubbell® http://www.Dreamstime.com
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