What Is a No-Shop Provision?
Once a merger agreement is signed, the buyer has publicly committed capital, reputation, executive attention, and months of work to the deal, and it wants assurance the target will not use that commitment as a stalking horse to attract higher bids. The no-shop covenant delivers that assurance by prohibiting the target from soliciting offers, providing diligence access to rivals, engaging in negotiations with other bidders, or withdrawing its board recommendation.
An absolute lockup would collide with the board's fiduciary duties, so no-shops carry a fiduciary out. If an unsolicited proposal arrives that the board, after consulting its advisors, concludes is or is reasonably likely to lead to a superior proposal, the target may engage with the new bidder. Delaware courts have made clear that directors of a company being sold cannot contract away their duty to consider a better deal.
How No-Shops Interact With Other Deal Protections
The no-shop rarely travels alone. Merger agreements typically add notice obligations requiring the target to inform the original buyer of any approach, along with matching rights giving that buyer several business days to equal or beat a superior proposal. A breakup fee, commonly 2% to 4% of equity value, becomes payable if the target ultimately terminates to accept the rival offer.
Practitioners distinguish a true no-shop from its variants. A go-shop affirmatively permits solicitation for a post-signing window, while a no-shop with a standard fiduciary out is sometimes called a window-shop because the target can respond to offers that arrive on their own but cannot go looking for them. How tightly these covenants are drafted is a routine negotiating battleground.
Why No-Shop Provisions Matter
Deal protection terms shape whether announced mergers get topped. A tight no-shop paired with a healthy breakup fee discourages interlopers, especially when the incumbent buyer also holds matching rights, since any rival must outbid it by enough to cover the fee and survive repeated matching. Boards weigh that deal certainty against the possibility of leaving shareholder value on the table.
For students and junior bankers, the no-shop is core merger agreement literacy. Interviewers may ask what stops a target from shopping a signed deal or how a rival bidder can still succeed after announcement, and the answer runs through the fiduciary out. On live deals, analysts summarize these provisions in board materials and deal-protection precedent tables.
