Thursday, March 28, 2013
Acording to Dan Primack at Fortune, Dell's independent directors agreed to reimburse Blackstone the cost of its bid as part of the go-shop process. This is a real positive, and I am surprised that more sellers with go-shop provisions don't do this as a matter of course. With an incumbent bidder in place, there are real disincentives for a second bidder to make the transaction specific investments required to put together a competing bid.
This is especially true given the fact that the incumbent bidder has more time to digest the information related to the target and almost always has a matching right in place. Rational second bidders fear that they will invest resources into making a bid only to have lose it to the incumbent - or worse overpay when the incumbent walks away. (Aside, my matching rights paper is here for those who might be interested.)
By agreeing to reimburse second bidders if they enter into a go-shop process, the independent directors lower the bars to generating second bids and increase the likelihood that the go-shop will be more than just window dressing. That's a good thing. Smart counsel for independent directors will be looking at Dell and fighting hard for reimbursement provisions in future deals.