A covenant in a merger or acquisition agreement that restricts the target company or seller from soliciting competing bids from other potential buyers. This is a common deal-protection device used by buyers to increase the certainty of closing and protect their investment of time, money, and resources. Depending on its drafting, the no-shop can also:

When the board of directors of a public company agrees to sell the company in a cash deal, the board generally becomes subject to a heightened duty of care, or Revlon duty. This duty requires the board to obtain the highest value reasonably available to the company's stockholders (see Practice Note, Fiduciary Duties of the Board of Directors: Sale of Control). Even though the directors may negotiate several deal-protection mechanisms (such as a no-shop), they still need to be able to accept a better deal for the stockholders without being fully locked up by the terms of the merger agreement. For this reason, target companies typically require a fiduciary out and exception to the no-shop that gives them certain rights to review alternate transactions or respond to other intervening events after the merger agreement has been signed. The common exceptions to the no-shop are:

While no-shops are common to acquisition agreements in public and private deals, the exceptions to no-shops are rare in private deals. Because the stockholders of a privately owned company usually agree to the sale directly, the board does not have to reserve exceptions out of a concern for its fiduciary duties to those stockholders.

In most public merger agreements, the buyer has a matching right that it can use to improve its offer before the board of the target company changes its recommendation for the merger and terminates the agreement.

For more information on no-shops, see Practice Notes, No-Shops and Their Exceptions and What's Market: No-Shop.