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This episode aired on BloombergTV on Mar 25, 2013

Go Shop

A “Go Shop” provision is an agreement that comes into play during the sale of a public company, that allows the company’s board to seek offers better than that which they have already received from the bidding firm.

Q. The Dell situation has gotten interesting, with the special committee of the board agreeing to negotiate with Blackstone, along with Michael Dell and Silverlake. And you’re saying this happened because its a “go shop” deal instead of a “no shop” deal?

A. Yes. Usually when a buyout group makes a bid for a company, the bid contains a “no shop” clause that limits the company from going out to look for another deal… the argument is that the firm that did the work to put the deal together shouldn’t be used as a stalking horse for other bids. But the Dell/ had the opposite: a “go shop” provision that said, please go out and look elsewhere.

Q. OK, but why in the world would they do that?

A. Because Dell himself is in a very delicate conflict situation. Everything about their offer is designed to ensure no one can complain about him using his position to “steal” the company at an unfairly low price. So a “no shop” might have looked improper.

Q. But still, he and Silverlake might be surprised by the fact that another offer actually showed up?

A. Yes. A lot of times a “go shop” is an empty offer, especially when the first deal is backed by a PE firm. Historically, it is super rare for one PE firm to participate in a bid that jumps another PE firm’s deal… so rare, in fact, that there’s an anti-trust case pending against the industry in Boston right now.

Q. So is this a sign that things might be different going forward, that there will be more competition in some of these buyouts?

A. I think so, and for a simple reason: so much dry powder out there that the firms just have to spend. This deal sorta looks that way itself… given the declining operating income at Dell and the absence of a clear turnaround story, what’s the competition at well over the pre-announcement market price?

Q. Away from this deal, then, are their implications for investors?

A. Merger arbitrage shops might start being more aggressive in MBO deals– looks like there might be more action in those transactions than previously.