The Impact of Go-Shop Provisions in Merger Agreements

Gogineni, Sridhar, and John Puthenpurackal. "The impact of go‐shop provisions in merger agreements." Financial Management 46.1 (2017): 275-315.

67 Pages Posted: 27 Mar 2016 Last revised: 16 Apr 2021

See all articles by Sridhar Gogineni

Sridhar Gogineni

The University of Tampa - John H. Sykes College of Business

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance

Date Written: March 20, 2016

Abstract

Go-shop provisions in merger agreements significantly alter the selling process by allowing active solicitation of new bids after a merger agreement is signed with a particular bidder. Using a large sample of merger agreements from 2003 to 2012, we examine whether go-shops are used to benefit target shareholders or for agency/entrenchment reasons. We find that go-shop provisions are more likely in deals involving negotiation selling method, financial buyers and all cash financing, and in targets with less valuation uncertainty, higher prior stock returns and higher institutional ownership. We find that go-shops have a positive association with the initial offer premium. We also find deals with go-shop provisions are more likely to have a competing bid and an upward revision of the initial offer premium, resulting in higher final target premiums, particularly for negotiation deals. Collectively, our results indicate that go-shops are effective contractual devices used to further target shareholder interests.

Keywords: mergers; go-shops; contractual provisions; termination fees

JEL Classification: G34

Suggested Citation

Gogineni, Sridhar and Puthenpurackal, John, The Impact of Go-Shop Provisions in Merger Agreements (March 20, 2016). Gogineni, Sridhar, and John Puthenpurackal. "The impact of go‐shop provisions in merger agreements." Financial Management 46.1 (2017): 275-315., Available at SSRN: https://ssrn.com/abstract=2755042 or http://dx.doi.org/10.2139/ssrn.2755042

Sridhar Gogineni (Contact Author)

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Tampa, FL 33606-1490
United States
8132533163 (Phone)

John Puthenpurackal

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Box 456008
Las Vegas, NV 89154-6008
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
169
Abstract Views
1,014
rank
224,614
PlumX Metrics