The recent explosion of private-equity deals, in which private funds purchase corporations outright, has put increasing time pressure on corporate merger agreements.  Such time-pressured deals jeopardize the ability of the target company’s board of directors to fulfill their fiduciary duty to shareholders to ensure that they obtain an adequate offering price.  Furthermore, management of target companies is often involved on the buyer’s side of such deals, raising greater hazards of a breach of fiduciary duty by the target board of directors.  One recent strategy employed to address these concerns is the “go shop” clause.  Such clauses essentially allow the target board to solicit offering prices from other potential acquirers in order to test the market.

Go shop clauses also allow the target board to break their deal if they receive a better offering price within a specified time frame after signing the initial agreement.  Under Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., target boards are required to obtain the highest offering price reasonably available for their shareholders.  The go shop clause is problematic in light of Revlon for two main reasons: (1) go shop clauses are increasingly a feature of private-equity deals and (2) the existence of a go shop clause may provide a target board with a false sense that it has fulfilled its Revlon duties.  This Note considers the potential problems with go shop clauses in light of the expansion of the board of directors’ duties of loyalty and good faith following Stone v. Ritter and the affirmation of the substance over form principle followed by the Delaware court in Louisiana Municipal Police Employees’ Retirement System v. Crawford.  The Note concludes that under Delaware law, a board that implements a go shop clause “must actively solicit additional offers in good faith” in order to fulfill its duty of loyalty.  Thus, target boards should approach go shop clauses cautiously and keep in mind that until they have actually utilized the go shop clause in good faith, they have not satisfied their Revlon duties.