- For Students
The research of Professors Charles Calomiris and Donna M. Hitscherich appeared in an article on July 26, 15 in the Financial Times, “Go-shop provisions: buyer beware OM Group and Apollo deal shows a final bid is not necessarily final.”
Read the paper on SSRN
"We study the decisions by targets in private equity and MBO transactions whether to actively “shop” executed merger agreements prior to shareholder approval. Targets can negotiate for a 'go-shop' clause, which permits the solicitation of offers from other would-be acquirors during the “go-shop” window and may lower the termination fee paid by the target in the event of a competing bid. The decision to retain the option to shop is predicted by various firm attributes, including larger size and more fragmented ownership. Go-shops are not a free option. We exploit the impact of various characteristics of the firms’ legal advisory team and procedures on the probability of inclusion of a go-shop provision to establish a negative relationship between go-shop provisions and initial acquisition premia. Importantly, that loss to shareholder value is not offset by gains associated with new competing offers. We conclude that the increased-use of go-shops reflects excessive concerns about litigation risks, possibly resulting from lawyers’ conflicts of interest in advising targets."