Flaws in the "Go-Shop" Process in Acquisition Transactions

Steven Davidoff, author of the Deal Professor Blog for the New York Times, has an interesting discussion about the flaws of a go-shop process through the example of the Dell/Silver Lake transaction on Dealbook. 

A "go-shop" allows a target company, after signing an acquisition agreement, to go out and shop itself around for a limited time, looking for additional bidders willing to offer a better deal than that offered by the existing acquirer. The process is designed as a "market check" to make sure the target company maximizes shareholder value in a situation where the target company's board agreed to exclusivity with one potential buyer as opposed to a pre-signing auction process.  

According to Davidoff,

there is also plenty of skepticism about this process. The conventional wisdom is that go-shops are a hollow ritual. The feel-good perception that the company is being actively shopped covers up the fact that the initial bidder has a perhaps unbeatable head start. Once a deal is announced, others don’t have time to catch up, nor do they want to get in a bidding war. A go-shop becomes just a cover-up for a pre-chosen deal.

In the Dell transaction, Dell's management teamed with Silver Lake Partners to take the company private.  The acquisition agreement provided for a go-shop period, during which Dell's investment bank reached out to 71 potential bidders.  Two parties initially showed interest: Blackstone Group and Carl Icahn, and Blackstone recently dropped out. The end result for Dell shareholders is that there is only one bidder to challenge Silver Lake's offer where there could have been much more competition for the PC company.