September 15, 2008

The Original Go-Shop?

Here is a guest blog from Steven Haas of Hunton & Williams: Travis Laster and I recently co-authored an article in the July 2008 issue of Insights entitled “Relearning M&A Lessons: A Reprise of the 1980s.” The gist of our piece is that the 2007 Delaware decisions in Netsmart, Topps and Lear applied basic principles found in several decisions from the 1980s LBO wave.

One of our points is that, while go-shops proliferated during the recent M&A wave, they weren’t an entirely new innovation. Lots of commentary last year focused on Topps and Lear as being the first judicial blessings of go-shops, but the Court of Chancery had already recognized a go-shop in In re Formica Corp. Shareholders Litigation, 1989 WL 25812 (Del. Ch.; Mar. 22, 1989)—although it was known simply as a post-signing market check. In Formica, a special committee negotiated for a 47-day period in which it could conduct a “post-agreement auction” and “actively solicit higher bids” before it closed an all-cash offer from a management-led buyout group.

Then-Vice Chancellor (now Justice) Jacobs compared the merger agreement with the no-shop provision and fiduciary-out that was validated in Fort Howard. He wrote that “[i]n this case the facts are more compelling than in Fort Howard. Here the market is being actively explored by [the investment bankers], who contacted 125 potential bidders and currently is engaged in discussions with 4 of them. In Fort Howard, by way of contrast, the corporation was not permitted to solicit potential acquirers, but could negotiate only with interested parties who contacted the company.”

I’m not sure if go-shops were used elsewhere in the 1980s, but I thought Formica was an interesting case that’s gone relatively unnoticed.