RR Donnelley SEC Hot Topics
Delaware Go Shop Cases
James W. McKenzie, Jr.
September 18, 2007
Go Shop Provisions
• Over the last two years, Go Shop provisions have become
increasingly more common
2007 ABA study of 79 public acquisitions by private equity buyers:
• 2% of deals announced in 2005 included Go Shop provisions
• 29% of deals announced in 2006 included Go Shop provisions
• What is a Go Shop provision?
Enables a target to solicit the marketplace for alternative buyers after
entering into a definitive agreement with an acquirer.
Under traditional No-Shop and Fiduciary Out provisions, the target may
not solicit new bids, and may negotiate with a third party who makes an
unsolicited bid only if the bid is demonstrably superior to the deal set forth
in the definitive agreement.
Go Shop Provisions
A Typical Go Shop Provision:
Duration: Go Shop period typically ranges between 20 and 50 days from
the date of the definitive agreement. The period should provide enough
time for the target to canvas the market, taking into consideration the
scope of any pre-signing market check.
Following Expiration: Most Go Shops enable the board to continue to
negotiate following the expiration of the Go-Shop period with a party
identified during the Go Shop.
Matching Rights: Some agreements give the acquirer the right to match
a superior proposal received during the Go Shop period.
Reduced Termination Fee: Approximately 45% of deals in the ABA
Study that included Go Shops also included a lower “break-up” fee during
the Go Shop period.
Go Shop – An Example
“During the period beginning on the date of this
Agreement and continuing until 11:59 p.m. (EST) on the
date that is twenty-five (25) days after the date hereof
... (the “Solicitation Period End-Date”), the Target ...
shall have the right ... to directly or indirectly:
(i) initiate, solicit and encourage Acquisition Proposals,
including by way of providing access to non-public
information pursuant to one or more Acceptable
Confidentiality Agreements, provided that the Target shall
promptly provide to the Buyer any material non-public
information concerning the Target or its Subsidiaries that is
provided to any Person given such access which was not
previously made available to the Buyer; and
(ii) enter into and maintain discussions or negotiations
with respect to potential Acquisition Proposals or otherwise
cooperate with or assist or participate in, or facilitate, any
such inquiries, proposals, discussions or negotiations.”
Go Shop Provisions
• Why the Increasing Prevalence of Go-
Targets have had leverage in a
competitive marketplace to negotiate.
Buyers may like Go Shops because it
helps ensure that the target fulfills its
fiduciary duties during the sales process.
Go Shop - Topps
In re: The Topps Co. Shareholders Litigation (Del. Ch. June 15, 2007)
• Topps makes baseball cards and old-style confections. Arthur Shorin,
the son of one of the founders of Topps, was the Chairman and CEO.
Shorin's son-in-law, Scott Silverstein, served as Topps's President and
Chief Operating Officer.
• In 2006, a private equity firm led by Michael Eisner bid $9.24 per share
in a proposal that envisioned the retention of existing management,
including Shorin's son-in-law.
• After some negotiations, the Topps Board approved a merger. Eisner
was willing to tolerate a post-signing Go Shop process, but not a pre-
• Under the agreement, Silverstein and other existing management
would remain. Shorin would remain as a consultant with sizable
Go Shop - Topps
• Topps had 40 days to solicit alternative bids.
• Upon the expiration of the Go Shop period, Topps was required to cease all
talks with any potential bidders unless the bidder had already submitted a
“Superior Proposal,” or was determined to be an “Excluded Party.”
Excluded Party: A potential bidder that the board considered
reasonably likely to make a Superior Proposal. If the bidder had
submitted a Superior Proposal or was an Excluded Party, Topps was
permitted to continue talks with them after the Go Shop period.
• Topps was also permitted to consider unsolicited bids after the expiration of
the 40-day Go Shop period if the unsolicited bid constituted a Superior
Proposal or was reasonably likely to lead to one.
• Two-tier termination fee: If Topps terminated the Agreement in order to
accept a Superior Proposal during the Go Shop period, Eisner was entitled
to approximately 3.0% of the transaction value. If Topps terminated the
Agreement after the expiration of the Go Shop Period, Eisner was entitled to
approximately 4.3% of the transaction value.
Go Shop - Topps
• During the Go Shop process, Topps contacted more than 100 potential
strategic and financial bidders, including Upper Deck.
• By the end of the Go Shop period, Upper Deck expressed a willingness to pay
$10.75 per share in a friendly merger. The Topps board had the option to
continue negotiations by finding that Upper Deck's interest was likely to result
in a Superior Proposal. However, the Topps board did not make such a
• After the end of the Go Shop period, Upper Deck made an unsolicited overture
to buy Topps for $10.75 without a financing contingency and with a “hell or
high water” promise to deal with antitrust issues.
• The Topps board refused to treat Upper Deck as having presented a Superior
• Upper Deck asked for relief from a Standstill Agreement to allow them to make
a tender offer and tell their side of the story. The Topps board refused Upper
Go Shop – Topps (Holding)
• The decision not to conduct a full auction was reasonable.
Ravenous capitalists should have been able to smell the possibility of
deal (No poison pill)
In 2005, Topps conducted an auction of its confectionary business. The
auction was a failure and a serious buyer never emerged.
• The deal protections left reasonable room for an effective post-
signing market check.
“For 40 days, the Topps board could shop like Paris Hilton.”
The 40-day Go Shop period and the later right to entertain unsolicited
bids work together. Interested bidders can to talk to Topps and obtain
information during the Go Shop Period with the knowledge that if they
needed more time to decide whether to make a bid, they could lob in an
unsolicited Superior Proposal after the Go Shop period expired.
Go Shop – Topps (Holding)
• Termination fee of 4.3% for period after the Go-Shop was a bit high.
However, not of the magnitude likely to have deterred a bidder.
• Match rights given to Eisner were reasonable.
Match Rights have frequently been overcome in other real-world
• The Court did grant the preliminary injunction based on:
The Topps boards decision not to declare Upper Deck as an excluded
• The board unnecessarily relinquished its ability to negotiate with Upper Deck.
The Topps board did not use the Standstill Agreement for legitimate
purposes and refused to release Upper Deck.
Omissions of material facts from the proxy statement.
Go Shop - Lear
In re: Lear Corp. Stockholders Litigation (Del. Ch. June 15, 2007)
• Lear is a leading supplier of automotive systems. Despite its size and prominence in its
market, Lear has been a troubled company in a depressed industry.
• Lear's CEO, Rossiter accumulated substantial benefits. These retirement benefits had a
fully-vested value of $14.6 million in 2011, but he could access only 70% by mid-2007.
• Afraid of a potential bankruptcy, Rossiter approached the Lear board about accelerating his
retirement benefits in November 2006. Although the Board permitted Rossiter to avoid the
multimillion dollar haircut, Rossiter did not act on this opportunity.
• In January 2007, Carl Icahn expressed interest in acquiring the Lear. Icahn had acquired a
significant equity stake in Lear (approx. 24%) in 2006.
• “Special Committee” formed - Committee permitted Rossiter to lead the negotiations.
• Icahn made an oral bid to acquire Lear at $35 per share. Through negotiations with
Rossiter, Icahn agreed to $36 per share. Icahn had indicated that he would pull his offer if
Lear chose to undertake a full-blown auction.
Go Shop - Lear
• Worried that a formal auction would cause Icahn to withdraw, the Special Committee
engaged its financial advisor to conduct a limited market canvass. There were no serious
indications of interest.
• Lear board accepted Icahn’s offer. The agreement contained a 45 day Go Shop provision
and a fiduciary out that gave Lear the right to consider unsolicited bids after the Go Shop
• Agreement had a two tiered termination fee: lowest for transactions entered into during Go-
Shop period (2.8% equity value); increased slightly after Go Shop (3.5% of equity value).
• Agreement gave Icahn a right to match.
• Agreement allowed Rossiter to accelerate payment of his retirement benefits.
• During the Go-Shop period, Lear's financial advisors contacted 41 potential buyers. None
of the buyers solicited made a preliminary bid.
• The Plaintiffs sought to preliminary enjoin the merger vote, alleging in part that the Board
breached its Revlon duties because it failed to conduct a full pre-signing auction and the
deal protections were unreasonable.
Go Shop – Lear (Holding)
• Lear’s decision not to conduct a full auction was reasonable
“No one else asked Lear to the dance even though it was perfectly obvious that Lear
was open to invitations”
Lear allowed its poison pill to lapse in 2004.
Pre-singing market check did not produce interest.
• Lear’s post signing market check was reasonable
The court gave little weight to the lower fee associated with the Go Shop period
because the Go Shop period was “truncated.”
The provision required the bidder to the get the whole “shebang done within the 45
day window. “ A bidder was hard pressed to enter into a definitive agreement during
this short period.
However, the termination fee for the period after the Go Shop period was not of the
magnitude that should deter a serious rival bid.
• The match rights were also reasonable: A bidder had it within its means to short circuit the
match right process because Icahn was only permitted one chance to match bids over $37.
• The Court did grant the preliminary injunction with respect to required disclosures related to
Rossiter’s retirement benefit negotiations with the board.
Go Shop - Berg
Berg v. Ellison (Del. Ch. June 12, 2007) (Transcript)
• Merger Agreement had a 25 day Go Shop period with a two
tier termination fee structure.
• Like in Lear, the Court did not give much weight to the Go
Shop provision because of its short period.
There is a lot of stuff to happen in a 25-day period.
• Court was originally concerned with a termination fee stated
to be 5% of equity value. However, the Court was satisfied
when the termination fee was corrected to be in the range of
3.0% - 3.5% of equity value.
Go Shop - Lessons
• Court will closely scrutinize transactions given perceived conflicts of interest
• The Revlon analysis depends the facts and circumstances of each transaction
• Go Shop - issues to consider:
Is the market aware that the company may be for sale?
Is the bidder threatening to walk away if there is a public auction?
Is the company conducting a pre-market canvas?
Does the merger agreement allow the company to continue
negotiations with potential bidders after the Go Shop period?
Does the company actually use the Go Shop and aggressively