In the Mail: Do Go Shop Clauses Do Targets Any Good?
By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring
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p class="MsoNormal"span style="font-size: 10pt; font-family: quot;Arialquot;,quot;sans-serifquot;;"Guhan
Subramanian says a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1084586"yes,/a if you haven?t seen the a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1084586"article./a a href="http://blogs.wsj.com/deals/2007/04/19/new-meaning-for-go-shops-at-topps/"Go shops/a are provisions that permit the
target boards to try to a href="http://money.cnn.com/2007/03/20/markets/pe_boards/index.htm"sell the company to someone else/a after agreeing in
principle to an acquisition (you usually see them in private equity deals, and
that?s what Subramanian looks at). As
Subramanian notes, go shops are the sort of thing that a board might embrace to
met its Delaware fiduciary duties to maximize sale value. Which, in turn, is the birth of a number of
plausible theories. Does the uncertainty
of a go shop lower the price? Does it
make no difference, because the initial sale is always going to be the one that
is concluded? And so on. Subramanian did an event study comparing go
shops v. no shops, and it showed a that cumulative abnormal returns for target
shareholder holding stock in companies with go shop clauses as opposed to those
without, was higher.nbsp; So go shops are, it appears, value-maximizing, rather than pointless charades. o:p/o:p/span/p
p class="MsoNormal"span style="font-size: 10pt; font-family: quot;Arialquot;,quot;sans-serifquot;;"o:pnbsp;/o:p/span/p
p class="MsoNormal"span style="font-size: 10pt; font-family: quot;Arialquot;,quot;sans-serifquot;;"This
couldn?t have been an easy paper to do. Subramanian peeled off management buy outs (because few bid against a
management takeover), and had to distinguish between go shop clauses added
after the company had already been marketed and those that hadn?t. So lots of
hand collection of data involved. It also
must have been difficult to distinguish between pure and add on go shops in the
deals themselves (I imagine it would be hard to know whether a company had been
shopped informally and so on), but it makes sense that an already-shopped
company would be more likely to sell for less than one with the prospect of
being shopped.nbsp; o:p/o:p/span/p
p class="MsoNormal"span style="font-size: 10pt; font-family: quot;Arialquot;,quot;sans-serifquot;;"o:pnbsp;/o:p/span/p
p class="MsoNormal"span style="font-size: 10pt; font-family: quot;Arialquot;,quot;sans-serifquot;;"Anyway,
it?s always good to read a a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1084586"nice event study/a. Much of my reading for the next couple of
weeks will be of the travel fiction variety, so you may not hear too much from
hereabouts. Happy holidays!o:p/o:p/span/p
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