Quick facts
- What it does: permits active solicitation of rival bids after signing
- Typical window: a few weeks
- Usual companion: a reduced break-up fee for a bidder found during the window
- Opposite of: a no-shop
- Not mandatory: Delaware imposes no single process
A go-shop provision allows a target that has already signed a merger agreement to go out and actively look for a better offer, for a defined period after signing.
It is the exception to the usual rule. Most agreements contain a no-shop, which forbids soliciting other bidders at all.
In plain English
Ordinarily, once you sign, you stop shopping. You may respond to an unsolicited approach that arrives on its own, but you cannot go looking.
A go-shop reverses that for a few weeks. The target's bankers can call rivals, share information, and invite competing bids, with the signed deal underneath as a floor. Nobody ends up worse off than the agreed price.
Why a buyer would ever agree
Because it solves the buyer's problem too.
A board that has not tested the market is vulnerable to the argument that it did not obtain the best available price. That argument can produce litigation, an injunction, or a shareholder vote that fails. A go-shop lets the board demonstrate a market check after the buyer has locked in terms, which is often preferable for a buyer to a pre-signing auction where the outcome is genuinely uncertain.
The buyer trades a small risk of being outbid for a large reduction in the risk that the deal is challenged.
The two-tier break-up fee
Go-shops almost always come with a split break-up fee. A lower fee applies if the target terminates for a bidder discovered during the go-shop window, and the standard, higher fee applies afterwards.
That structure is the substance of the provision. A go-shop paired with a full-size fee and unlimited matching rights invites bids that cannot realistically win. The reduced fee is what makes the window real, so read the fee before believing the clause.
What Delaware actually requires
This is where the common assumption goes wrong. There is no rule that a board must run an auction or obtain a go-shop.
In C & J Energy Services, Inc. v. City of Miami General Employees' and Sanitation Employees' Retirement Trust, the Delaware Supreme Court was explicit: Revlon "does not require a board to set aside its own view of what is best for the corporation's stockholders and run an auction whenever the board approves a change of control transaction." There is "no single blueprint that a board must follow to fulfill its duties," and a court applying enhanced scrutiny must decide "whether the directors made a reasonable decision, not a perfect decision."1
The Court of Chancery had ordered the company to solicit alternative proposals, in effect imposing a go-shop by injunction. The Supreme Court reversed, noting that a mandatory injunction requiring affirmative action requires either a trial with findings of fact or undisputed facts, and the record had neither.1
What the C&J board had done instead was described approvingly: it bargained for a "fiduciary out" if a superior proposal emerged during "a lengthy passive market check," and during that check "a potential competing bidder faced only modest deal protection barriers."1
Passive and active market checks
The distinction matters.
A passive check means the target may not solicit, but may respond to an unsolicited superior proposal, usually via a fiduciary out that permits termination on payment of the fee. Whether that suffices depends on whether the barriers are low enough for a serious rival to act.
An active check is the go-shop: the target may pick up the phone.
Both can be reasonable. What a court examines is whether the overall structure gave value a genuine route to emerge, which is the same question that governs break-up fees and every other deal protection. Courts "will not substitute their business judgment for that of the directors, but will determine if the directors' decision was, on balance, within a range of reasonableness."2
The duty these clauses answer to is the one Revlon described, where directors selling the company become "auctioneers charged with getting the best price for the stockholders at a sale of the company."3 A go-shop is one way to discharge that. It is not the only way.
Does it produce higher bids
Rarely, and the reasons are structural rather than mysterious. The window is short. A newcomer must run diligence in weeks against a bidder that took months. Matching rights let the original buyer see any rival bid and simply meet it, so a rival can do all the work and still lose.
That does not make the provision worthless. Its value is largely evidentiary: it demonstrates that the board tested the price. A board relying on it to actually find a better buyer is usually disappointed. A board relying on it to show it looked is usually vindicated.
What this means for a founder
If you are selling your company and a buyer asks for a no-shop, that request is reasonable. What matters is what surrounds it.
Ask for three things. A fiduciary out, so you can accept a genuinely superior proposal rather than being locked in. A fee low enough that a rival can afford to bid over it. And a realistic no-shop duration, since a long exclusivity period with no market check is where sellers lose the most negotiating power.
The general lesson from the case law is worth internalising: Delaware asks whether the directors made a reasonable decision, not a perfect one. Applied to your own sale, the question is not whether you ran a textbook auction. It is whether you can explain, later and under scrutiny, why the process you chose was a sensible way to find the best available price.
Related reading
- Break-Up Fee covers the fee that decides whether a go-shop is real
- Fiduciary Duty covers the auctioneer obligation these clauses respond to
- White Knight covers the rival bidder a go-shop hopes to attract
- Material Adverse Change Clause covers the buyer's route out of the same agreement