The merger agreement between Microsoft and LinkedIn included the following provision on page 58: The no-shop clause is a transaction protection method that protects the buyer from bidding wars and purchase price increases if there are multiple offers. Depending on the exclusivity that the buyer is looking for, the no-shop clause may require the following: A no-shop clause is very useful from the perspective of the potential buyer as it can prevent the seller of the company or asset from soliciting other bids, which can result in a higher purchase price or bidding war if there are multiple interested parties. On the other hand, the seller may not want too long a non-shopping period, especially if there is a risk that the potential buyer will withdraw from the transaction during or after due diligence. LinkedIn may not terminate the merger agreement to enter into an agreement for a global offer unless it complies with certain procedures in the merger agreement, including participating in bona fide negotiations with Microsoft for a specified period of time. If LinkedIn terminates the merger agreement to accept a superior proposal, it will have to pay a $725 million termination fee to Microsoft. One of the most notable M&A transactions that used a no-shop disposition was the Microsoft LinkedIn transaction. A freeze is an agreement in which the buyer has the opportunity to acquire a portion of the shares of the target company or take possession of the vital assets of the target company. This means that the buyer will have a competitive advantage over other competitors in the transaction as they already have partial ownership of the target company. However, freezes should not be used to intimidate the board of directors or force shareholders to approve the transaction.
The target company may also set a shorter no-shop clause to favor it, especially if there is a risk that the buyer will leave during the due diligence process. A no-shop clause or non-shop disposition is a statement contained in a letter of intent or agreement in connection with an acquisition or merger that prevents the seller or target company from soliciting further offers or acquisition proposals for a specified period of time. When is it used, how important is it, what are the exceptions? A no-shop clause is a clause contained in an agreement between a seller and a potential buyer that prevents the seller from obtaining an offer to purchase from another party. In other words, the seller cannot purchase the business or asset once a letter of intent or memorandum of understanding has been entered into between the seller and the potential buyer. The letter of intent describes a party`s obligation to do business and/or enter into an agreement with another party. One of the high-stakes deals that included a non-store disposition was Microsoft`s acquisition of LinkedIn in 2016. In a press release, Microsoft announced that there was a separation fee of $725 million if LinkedIn struck a deal with another buyer. This meant that if LinkedIn terminated the merger agreement with Microsoft to accept a superior offer, it would have to pay Microsoft a $725 million termination fee.
The provision prohibiting the store was on page 56 of the Microsoft-LinkedIn merger agreement, which set out LinkedIn`s obligations in the agreement. While the lack of stores severely limits the purchase of the store, target boards have a fiduciary responsibility to maximize the value of the offer to shareholders, so they generally cannot refuse to respond to unsolicited offers. The no-shop clause is also an agreement under an acquisition or merger agreement that prevents a target company or seller from hearing competing offers from other parties. The no-shop clause is a common protection mechanism that protects stores that can be used by shoppers to increase security when completing and protecting an investment of time, money and resources. From the perspective of the target shareholder, the ideal way to sell is to conduct a sales process where the company recruits multiple buyers to maximize transaction value. That`s what happened (a little bit) with LinkedIn – there were several bidders. With the acquisition of Microsoft/LinkedIn, the no-shop was an important part of the negotiations, as Microsoft was fed up with the other candidates, namely Salesforce. In the end, the no-shop held, but that didn`t stop Salesforce from coming up with a higher unsolicited offer for LinkedIn after the deal, forcing Microsoft to raise the stakes. On the other hand, the target company may also look for alternative conditions to the no-shop clause that would promote a better deal for it. In this case, the target company can request a trustee for the no-shop clause that would allow it to consider other offers even after the merger agreement has been signed. This allows the target company to negotiate the best deal for its shareholders when multiple proposals are received. A non-shopping clause is a clause contained in a contract between a buyer and a seller that prohibits a seller from obtaining a buyer`s proposal from other parties.
The seller can no longer purchase the asset or business once the agreement or letter of intent has been incorporated into the agreement between the buyer and seller. A no-shop clause usually applies for a limited period of time. But if the seller doesn`t go through a ”process” – that is, if they only work with one buyer – they are sensitive to arguments that they have not fulfilled their fiduciary responsibility to shareholders by not seeing what else is there. If this is the case, buyers and sellers can negotiate a go-shop layout that, unlike no-shop, gives the seller the opportunity to actively search for competing suggestions (usually for 1-2 months), while considering that this is a lower separation fee if a higher proposal emerges. Buyers enter into such an agreement to ensure that the seller does not negotiate a sale with someone else during this period. Sellers usually try to avoid a long period of non-shopping, as the buyer may leave the business once due diligence is complete. This delays the sales process for them. Sellers only accept a no-shop clause if there is no other choice to move a transaction forward. A potential buyer avoids a bidding war by entering into such an agreement.
The price of the asset may increase if there are other interested buyers. A no-shop clause restricts the seller`s leeway to increase the selling price of the asset. A no-shop clause is very common in the letter of intent, as buyers expect a period of exclusivity before entering into a transaction. The typical period of a no-shop clause is between 45 days and 90 days. Milestone data can also be included in the clause if the seller can check the progress of the closing of the transaction. Anonymity is an influential element in a high-stakes transaction. The Seller undertakes to accept the condition of non-shop as a gesture of good faith towards a Buyer. A buyer with a strong position always includes this term in a letter of intent. During the storeless phase, the buyer evaluates the business and performs due diligence.
Since a strong buyer offers a good deal, the seller accepts this delay. A no-shop clause is a protective mechanism used by buyers to increase security when closing the transaction. It protects their investment from the time, funds and resources they use to value a business. It takes some time for the buyer to complete an acquisition or merger. Without a non-shopping clause, the seller can negotiate the deal with other potential buyers, and if the seller manages to find a better deal, the buyer can lose all their money and resources invested in valuing the business. Although there are many applications for a non-shop clause, they are quite common in mergers and acquisitions. For example, Apple may request a no-store clause when evaluating a potential acquisition. As Apple, the seller may accept a no-store clause in the hope that Apple`s offer is strong or that another potential synergy provides enough value to justify acceptance of the clause. When Microsoft acquired LinkedIn on June 13, 2016, the press release announced that the separation fee would take effect if LinkedIn finally entered into an agreement with another buyer. Page 56 of the merger agreement between Microsoft and LinkedIn details how limited LinkedIn`s ability to secure further offers during the period between signing the merger agreement and closing the agreement is.