Fiduciary out
M&A / Merger ModelThe exception in a no shop that lets a board engage with an unsolicited superior proposal despite having agreed not to look for one.
Also written: fiduciary termination right
A board cannot bind itself to ignore a better offer, so every no shop carries an exception. The fiduciary out permits the board to consider and engage with an unsolicited proposal that is, or could reasonably lead to, a superior proposal, and ultimately to change its recommendation or terminate.
The distinction it draws is between asking and answering. The target may not go looking. It may respond to what finds it anyway. That single line is why a go shop has to be negotiated separately: without one, the target has no right to pick up the telephone.
It is heavily conditioned in practice. The board typically has to notify the original buyer, provide the terms of the competing proposal, allow a matching period, and pay a break fee if it terminates. So the out exists and it is expensive to use.
It has no direct UK analogue, because there is nothing for it to be an exception to. Rule 21.2 prevents the lock up being agreed, so a UK board's freedom to engage with a rival is the default position rather than a carve out from a covenant.
Worked example
A target has signed with a no shop and cannot solicit anyone. A rival approaches on its own initiative.
The fiduciary out lets the board engage, share information and negotiate, provided it notifies the incumbent and observes the matching period.
If it then terminates, the break fee becomes payable, which is what makes the out real but not free.