No-Shop Clause

Clause in a merger agreement, which precludes the incumbent management of the target from looking for a higher bid from other companies. Since they may prevent the maximization of the purchase price, prohibitions on target management listening to, or considering un-solicited bids is usually unenforceable and contrary to directors and management’s fiduciary duties to shareholders and thus most prevailing corporate laws.

Even though prohibitions on actively soliciting higher bids are generally legally acceptable, they can also under certain circumstances be a breach of management’s fiduciary duties, where for example the offer that management has accepted is not very favourable to shareholders and a real prospect would exist of securing a higher offer if one was sought. See Revlon Duties.