[Editor’s Note: The following post is authored by Kirkland & Ellis LLP]
The Delaware courts have often repeated the bedrock principle that there is no one path or blueprint for the board of a target company to fulfill its Revlon duties of seeking the highest value reasonably available in a sale transaction. The courts have usually deferred to the judgment of the directors as to whether the requisite market-check is best achieved by a limited pre-signing process, a full-blown pre-signing auction or a post-signing fiduciary out. However, as evidenced in the recent decision by VC Glasscock in NetSpend, it is equally true that the courts will also not automatically bless a sale process simply because the deal protection provisions fall with- in the range of “market” terms. Especially in a single-bidder sale process, the courts will continue to seek evidence of a fully informed and thoughtful approach by the target board to the sale process and deal protection terms with the goal of maximizing value for shareholders.
The innovative go-shop, which first gained popularity during the 2006-2008 LBO boom as an alternative to the traditional no-shop, initially reflected such a nuanced approach to balancing the desire to quickly strike a deal with a single financial buyer with the recognition that a more robust post-signing market check was probably in order. However, it rather quickly fell victim to the precedent-driven marketplace for deal terms — both in its fairly reflexive deployment as “required” in certain deals (mainly private equity go-privates) and in its largely standardized detailed terms. While the introduction of a “hybrid go-shop” (which we wrote about in 2010) reflected a thoughtful adaptation of the go-shop tool in a different category of deals (sales to strategic buyers in single- bidder processes), the traditional go-shop remained fairly regimented, with any variation mostly residing at the edges — e.g., the number of days the target was permitted to actively solicit competing bids or the percentage of the discount on the full break-up fee for topping deals struck with go-shop participants.
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