What Does No-Shop Clause Mean?
A no-shop clause, or no-shop provision, is a statement included in a letter of intent or agreement in an acquisition or merger that limits the seller, or target company, from soliciting further bids or acquisition proposals for a specified period of time.
Divestopedia Explains No-Shop Clause
The no-shop clause is a method of deal protection that protects the buyer from bidding wars and increases in purchase price if there are multiple proposals. Depending on the exclusivity that the buyer seeks, the no-shop clause can require that:
- The target company does not divulge any competing bid information to third parties
- All discussions with third party bidders cease, also known as the no-talk provision
- The seller notifies the buyer of any unsolicited bids
On the other hand, the target company may also seek terms alternate to the no-shop clause that would favor a better deal for them. In that instance, the target company can seek a fiduciary out to the no-shop clause that would allow them to review other offers, even after the merger agreement has been signed. This allows the target company to negotiate the best deal for its shareholders when several proposals are received.
The target company may also stipulate a shorter no-shop clause period to favor them, especially when there exists a risk that the buyer may walk away during the due diligence process.