Go-Shops Revisited

The Original Study, which examined deals announced in 2006-07, reported that a higher bid emerged during the go-shop period 12.5% of the time (6 instances out of 48 go-shop deals). Using a new database of M&A transactions over the past nine years, we find that the jump rate in the 2010-2018 timeframe was 5.6% (6 out of 108 go-shops), declining to 2.5% (1 out of 40) in the period 2015-2018. The last successful go-shop in our sample occurred approximately three years ago, in January 2016, when II-VI Inc. successfully jumped GaAs Labs’ offer for ANADIGICS, Inc. during a 25-day go-shop period.

As one of us concluded in the Original Study, “go-shop provisions can be a better mousetrap’ in deal structuring – a `win-win’ for both buyer and seller.”  However, over the ensuing decade, a broader set of transactional planners distorted the go-shop technology in ways that achieve their clients’ objectives but no longer satisfy broader corporate law objectives of promoting allocational efficiency in the M&A marketplace. (footnote omitted)

via Harvard, SSRN

Go-shopにおけるjumpの例

PEのKohlberg & Co.が買収を発表していたSteinway Musical Instruments (LVB)ですが,Paulsonによるsuperior proposalを受けたと発表しました。MBOの事案ではないようなので,superior proposalを受けてもおかしくはないのですが,一応,メモとして残しておきます。

via Westlaw, N.Y. Times

最近のGo-Shop事案

NetSpendは,Total System Services, Inc.から買収の提案を受けて,価格の交渉をしました。その際に,Go-Shopと引き換えに,オークションはしませんでした。最終的な買収契約には,過去にNetSpendに興味を示した2社のstand still契約の放棄の禁止が織り込まれていました。

Koehler v. NetSpend Holdings Inc., 2013 WL 2181518 (Del. Ch. May 21, 2013) (Glasscock, V.C.)は,取締役会によるRevlon義務の可能性を認め,差止めに関して,回復不能な損害は認めたものの,そのmagnitudeが大きくないということで,差止めは認めませんでした(いわゆるdon’t-ask-don’t-waive条項)。

I find that, in forgoing a pre-Agreement market check, and relying on an ambiguous fairness opinion, the Board had to be particularly scrupulous in ensuring a process to adequately inform itself that it had achieved the best price. Instead, the Board agreed to deal-protection devices which included a no-shop clause and which provided that don’t-ask-don’t-waive provisions already in place would continue, preventing the Board from learning whether Private Equity A and Private Equity B were interested in bidding. These entities had just completed due diligence, and, in Private Equity B’s case, had bid for a substantial minority position in NetSpend. In light of these circumstances, for the reasons explained below, I cannot find that the Board was sufficiently informed to create a process to ensure best price. Koehler v. NetSpend Holdings Inc.], 2013 WL 2181518, at *13 (Del. Ch. May 21, 2013)

Most problematically, it does not appear that the Board even considered whether the standstill agreements should remain in place once the Board began negotiating with TSYS, which would have been the ideal time to waive the DADW clauses. Upon entering into the Merger Agreement, NetSpend lost the right to waive the DADW clauses, because the Merger Agreement requires TSYS’s consent before NetSpend waives the DADW clauses. The record suggests that the Board did not consider, or did not understand, the import of the DADW clauses and of their importation into the Merger Agreement. In order to fulfill its fiduciary duty to construct a sales process reasonably designed to maximize value, the action of the Board must be informed, and “logical and reasoned.” Nothing in the record indicates that the retention by the Board of the DADW provisions, or in the Board’s importation of the provisions in the Merger Agreement, was informed, logical and reasoned. Id. at *19 (footnotes omitted).

I believe NetSpend’s decision to conduct a single-bidder process was reasonable at the time the decision was made. After taking that decision, however, once the Board had a clear indication that a sale to NetSpend would occur without a formal market check, the Board had a duty to follow a careful sales process to inform itself otherwise that it had achieved the best price. Instead, the combination of the Board’s single-bidder strategy, the failure to obtain a go-shop period or otherwise solicit other acquirers post-agreement (including through providing sufficient time, post merger, for a suitor to appear), the reliance on a weak fairness opinion and, in particular, the failure to waive the DADW clauses, resulted in the Board’s approving the merger consideration without adequately informing itself of whether $16.00 per share was the highest price it could reasonably attain for the stockholders. Id. at *20 (footnotes omitted).

This Court has broad discretion when making a determination of whether or not the Plaintiff faces the threat of irreparable harm. I need not find that the threatened injury is entirely “beyond the possibility of repair by money compensation.” … I find that the Plaintiff has met her burden of showing that she faces threatened irreparable harm in the absence of an injunction.Id. at *21–22. (footnotes omitted)

In the instant case, the Plaintiff has presented little evidence establishing the magnitude of the harm that she, and other stockholders, face as a result of the inadequate sales process that the NetSpend directors conducted. Id. at *22.

NetSpendの買収契約その訂正契約書は,EDGARから見れます。

Kirkland & Ellisのメモランダムは,(1) 特定の潜在的なjumpersだけbreak-up feeを下げる代わりに与えられた交渉の期間は短い,(2) 買収契約締結前のオークションの参加者は,二段階break-up feeの恩恵を受けられない,という最近の買収で用いられた独自の会社売却の手順について言及していて,これも興味深いです。

In the recent acquisition of Websense by Vista Equity (soon copied in the Shuanghui/Smithfield deal), the merger agreement includes a traditional no-shop, but with a narrow go-shop-like exception that allows the target to continue discussions and due diligence with a limited number of bidders who were active participants in the sale process before the deal was announced. A lower break-up fee (Websense –50%; Smithfield –43%) is payable if the target terminates the initial deal to accept a superior offer from one of these “excluded bidders” by a specified deadline. The relevant period is relatively short (in Websense, a few weeks) and the topping bid has to be completed and signed (rather than just first made) by the deadline in order to qualify for the lower fee, noting that these bidders were well into the bidding process when they lost the pre-signing auction.

A very different approach was taken in the recent sale of BMC Software to a consortium led by Bain Capital/Golden Gate Capital. While the agreement included, at the target’s insistence, a fairly traditional goshop, the merger agreement provides that certain parties that had participated in the robust and somewhat public auction prior to the announcement of the consortium deal were not eligible for the lower break-up fee payable by go-shop participants who strike a deal on a topping bid before the deadline.

via S&C, K&E, Milbank, RL&F, Morris James, DealLawyers.com, PWRW&G, PLC