Access Type

Open Access Dissertation

Date of Award

January 2014

Degree Type

Dissertation

Degree Name

Ph.D.

Department

Management and Information Systems

First Advisor

Sudip Datta

Abstract

Along with the private equity boom in the mid-2000s emerged a new M&A deal technology - the "go-shop" provision. In this paper, I address the question whether go-shop provisions are utilized by target managers to pursue private benefits or are used to protect the fiduciary interests of the target shareholder. I investigate the effectiveness of go-shop provisions by empirically testing two competing hypotheses: (a) the window-dressing hypothesis, and (b) the shareholder interest hypothesis.

This is the first study to shed light on the impact of go-shop provisions on the wealth of both the target and the bidder shareholders, and thereby provide evidence on the synergies associated with such deal provisions. I also provide evidence on how go-shop provisions affect the initial acquirer's bidding behavior, an important issue that has been overlooked in previous literature. In addition, this study examines go-shop deal characteristics that are important in determining the wealth effect as well as deal outcomes.

I document that go-shop deals have higher deal synergies and higher positive wealth effect on targets than no-shop deals. Further, although go-shop provisions have no effect on bidders' wealth, they pressure the initial bidders to raise the initial offers to protect the deals. I also show that the go-shop deals are more likely to be terminated compared with no-shop deals. To address concerns regarding endogeneity and selection bias, I employ Heckman two-stage procedure and propensity score matching method to confirm the findings. The go-shop period, the number of potential buyers contacted, the number of confidentiality agreements entered, and bifurcated termination fee structures are important determinants of deal outcomes. Specifically, the market reacts positively to the bifurcated fee structure in go-shop provisions. The number of potential buyers contacted and the number of confidentiality agreements entered during the go-shop period play an important role in pressuring the initial bidder to raise the original offer price, while the length of the go-shop period and the number of confidentiality agreements entered predict the likelihood of the initial bid success. The findings support the shareholder interest theory and suggest that go-shop provisions are an effective market canvas alternative to public auctions.

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