Part one of this series explored the interplay between the counterparties once a business combination has been agreed upon and provided an overview of deal protection mechanisms available to both target and bidding companies.

Part two of this series explores how to craft a deal protection package that delivers the right tension of protection, while adhering to the various regulatory and legal constraints to a business combination.

There is no definitive catalogue of deal protection mechanisms, because the term describes a class of mechanisms that are both fluid and flexible. Several devices, such as no-shop, confidentiality and break fees have emerged as standard in business combination transactions, whereas other, more exotic deal protection mechanisms have been deployed with varying degrees of success.

No-shop provisions (commonly used in Bermuda) principally seek to prevent a target company from soliciting or encouraging third-party proposals. These provisions vary from a less restrictive clause that permits the target company to provide information to unsolicited bidders, to the much more restrictive “no-talk” covenants that prohibit the target company from responding to any third-party advances.

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