Series 79 practice questioneasyDeal Protections
A 'no-shop' clause in a merger agreement prohibits the target company from:
- AActively soliciting competing acquisition proposals after signing the agreement✓ Correct answer
- BDisclosing the merger to its employees
- CFiling the required proxy statement with the SEC
- DConducting due diligence on the acquirer
Explanation
Why A — Actively soliciting competing acquisition proposals after signing the agreement
A no-shop clause restricts the target company from actively soliciting, initiating, or encouraging competing bids after signing a definitive merger agreement. This provision protects the acquirer's investment of time and resources in negotiating the deal. However, most no-shop clauses include a 'fiduciary out' that allows the target's board to respond to unsolicited superior proposals to fulfill its fiduciary duties to shareholders.
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