Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Go Shop Period

What it is:

A go shop period is a window of time during which public companies can solicit competing purchase offers.

How it works (Example):

Let's say Company XYZ is for sale. It receives an offer of $25 per share from Company ABC. Company ABC agrees to give Company XYZ a go shop period. During that time (let's say it's 45 days, though go shop periods typically range from 20 to 50 days), Company XYZ talks with other possible acquirers and receives two more offers: one from Company 123 for $27 per share, and one from Company DEF for $26.50 per share.

At this point, Company ABC can either match the offers, exceed the offers, or walk. Depending on the terms of the go shop period, if Company XYZ does not receive any offers that are better than $25 per share, it may have some obligation to proceed with the sale or else pay Company ABC a break-up fee (also called a termination fee).

Why it Matters:

The go shop period sounds risky for Company ABC in our example, but really it is a way to prevent shareholder lawsuits that may surface should the deal with Company XYZ proceed. That's because Company XYZ shareholders might claim that Company XYZ's board did not fulfill its fiduciary duty by shopping the company around to get the best possible sale price. These legal claims and potential liabilities are something that Company ABC might inherit should it proceed with the purchase of Company XYZ, so it is also in Company ABC's best interests to allow a go shop period.

For companies interested in submitting offers during a go shop period, the pressure can be excruciating because the period is often too short to perform meaningful due diligence on the target. Accordingly, some go shop agreements include a provision that would allow Company XYZ to continue negotiating with another bidder after the go shop period expires if the other bidder is truly serious about the acquisition.

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