In ILM 201234026, the IRS concluded that a "go shop" provision does not alter the bright-line date for a covered transaction.
The acquiring corporation (Acquirer) acquired Target corporation (Target) in a covered transaction as defined in Treas. Reg. Sec. 1.263(a)-5(e)(3) pursuant to a merger agreement. The terms of the merger agreement were approved by both corporations' boards of directors, and the agreement was executed on March 31, 2012. The merger agreement allowed Target to continue to look for another acquirer (the "go shop" provision) until April 30, 2012. If Target found a better offer, Acquirer could match it. If Acquirer declined to do so, Target could abandon its merger agreement with Acquirer.
Treas. Reg. Sec. 1.263(a)-5(e)(1) provides for determination of the bright-line date, specifying that an amount paid in the process of investigating or otherwise pursuing a covered transaction facilitates the transaction only if the amount relates to activities performed on or after the earlier of (i) the date on which a letter of intent, exclusivity agreement or similar written communication is executed by representatives of the acquirer and the target; or (ii) the date on which the material terms of the transaction (as tentatively agreed to by representatives of the acquirer and the target) are authorized or approved by the taxpayer's board of directors.
The IRS concluded that the "go shop" provision was only one provision of the merger agreement, and this provision neither served to negate the document's execution nor trumped the approval of the merger agreement terms by the corporations' boards of directors. Accordingly, the bright-line date was March 31, 2012.
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