PHILADELPHIA (Reuters) - Telecommunications company RCN Corp (RCNI.O) and CKE Restaurants (CKR.N) may be soliciting new suitors, but they will have a tough time finding higher bids if history is any indication.
Both RCN and CKE have agreed to takeovers, but their deals give them additional time, called a "go shop" period, to find a higher offer. Such shopping outings, however, rarely prove fruitful.
Since 2004, there have been 108 deals with clauses giving the target company a go shop period, often 30 to 60 days, according to FactSet MergerMetrics.
Among those deals, only 8.3 percent found a higher offer within the go shop window, while 13.9 percent found one eventually, FactSet MergerMetrics said.
"There may be some companies that haven"t run full auctions and have to make sure they are satisfying their "Revlon" duties," said Jeffrey Kaplan, global head of mergers and acquisitions at Bank of America Merrill Lynch.
The 1985 case of Revlon (REV.N) v. MacAndrews Forbes Holdings established that when a board concludes that the company"s sale is inevitable, the directors must be neutral arbiters to ensure that shareholders get the best possible offer.
"A company and a board will say: "Let"s sign up a deal and have a go shop just to be certain,"" Kaplan said. "It"s not likely you"re going to get topped. It"s just good governance for a public company."
Typically, however, deals have "no shop" clauses that prevent a target from actively soliciting new bids while allowing it to consider an unsolicited offer.
Use of go shop provisions has been flat. In the first three months of this year, they have been used five times, compared with 19 times in 2009 and 18 times in 2008, according to FactSet MergerMetrics.
"Go shop provisions will continue to be used more frequently," said Allen Michel, a professor at Boston University"s School of Management.
"The technique is increasingly being used in a wide variety of acquisitions because it is a seemingly low-cost way of providing the best possible price to target shareholders and provides a means by which directors can satisfy their Revlon duties," Michel said.
FRUITLESS SHOPPING
Go shops generally do not lead to new offers, as SkillSoft Plc (SKIL.O) found. Earlier this month, the e-learning software maker ended its go shop period with no offers other than the original $1.1 billion bid from a group of private equity firms.
Less typical is the success seen by Amicas Inc (AMCS.O), which got a higher bid from Merge Healthcare Inc (MRGE.O) than its original deal with Thomas Bravo LLC. The new offer did not come within the 45-day go shop period, but Amicas still accepted it and walked away from its original deal.
"A downside for target company shareholders is the sometimes high break-up fee associated with the go shop provision that is levied on the target with the acceptance of another offer," Michel said.
Sometimes a new bidder doesn"t win, even if it tops an existing offer.
"It"s hard to top a bid," Bank of America"s Kaplan said. "You have to deal with publicity, pay a break-up fee, and it"s hard to differentiate among bidders if there are financial buyers with no synergies."
In 2007, Restoration Hardware, which had accepted a takeover offer from Catterton Partners, got a competing -- and higher-- bid from Sears Holdings Corp (SHLD.O) during the go shop window. But the company turned Sears down after the board determined the proposal "was subject to significant uncertainties."
Even when topped, some suitors don"t go away quietly.
In December, Green Mountain Coffee Roasters Inc (GMCR.O) made a competing bid for Diedrich Coffee Inc (DDRX.O) during a go shop window, scuttling the target"s original agreement with Peet"s Coffee Tea Inc (PEET.O).
However, Peet"s holds out hope. It has extended its tender offer just in case the Green Mountain Coffee deal collapses under regulatory review.
(Reporting by Jessica Hall; Editing by Lisa Von Ahn)
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