No shop
M&A / Merger ModelA covenant preventing the target from soliciting other buyers once a deal is signed, subject to a fiduciary out for unsolicited approaches.
Also written: no-shop, no shop covenant
A no shop is the standard American deal protection covenant. From signing until completion the target may not solicit, encourage or negotiate with anyone else. It is what a buyer is paying for when it agrees to be the one that goes first and does the work.
It is never absolute, because a board cannot contract out of its duties to shareholders. The fiduciary out permits the board to engage with an unsolicited approach that is reasonably likely to lead to a better offer, and to change its recommendation if one materialises, usually after giving the original buyer notice and a chance to match.
Read alongside a break fee and matching rights, the three form one package. The no shop stops the target looking, the matching right lets the incumbent respond to anything that finds the target anyway, and the fee makes a switch expensive. A go shop suspends the first of the three for a short window.
In a UK offer under the Takeover Code the package is largely unavailable. Rule 21.2 treats a no shop as an offer related arrangement and prohibits it except with the Panel's consent, so a UK target board is not restricted from talking to a rival at all, which is a structural difference rather than a matter of negotiating strength.
Worked example
A signed agreement bars the target from soliciting other bidders but allows the board to respond to an unsolicited proposal.
A rival approaches unprompted. The board may engage, because that is the fiduciary out, but it must notify the original buyer and allow it to match.
The same clause in a UK Code offer would be an offer related arrangement under Rule 21.2 and would need the Panel's consent.