As the M&A market fires on all cylinders, we’re seeing a sharp uptick in both competitive sale processes and deal jumps of announced public transactions across sectors, most notably the ongoing hostile bid for Warner Bros. Discovery by Paramount and the explosive bidding war between Pfizer and Novo Nordisk for Metsera.[1] While most competition for a hot target plays out before public announcement of a deal, in some situations, a potential buyer decides to continue (or start) the fight after the target has signed a merger agreement with another suitor.
A well-executed deal jump is more art than science. Let’s run through the top 10 key considerations for would-be topping bidders thinking about taking the leap.
1. Confirm the deal is (and remains) jumpable.
A significant majority of public company M&A transactions in the US include a “fiduciary out” to the no-shop provisions of the definitive agreement. These provisions, crafted based on extensive Delaware case law addressing the board’s fiduciary obligations in the sale context before stockholders approve a transaction, generally permit the target to:
- Provide diligence information to, and negotiate with, a potential topping bidder that has submitted a topping bid that constitutes or would be expected to lead to a “superior proposal.”
- Subject to a match right in favor of the original buyer (the key incumbent advantage associated with signing the merger agreement), terminate the existing merger agreement to enter into a new definitive agreement with the topping bidder constituting a “superior proposal,” subject to payment of a break fee to the original buyer.
In general, the ability to submit a topping bid remains open until the target’s stockholders have spoken. For one-step merger transactions, the fiduciary out terminates once target stockholder approval of the merger has been obtained.[2] Ideally, the topping bidder will make its initial approach well in advance of the target stockholder meeting, but if the meeting is imminent, special care will need to be paid to the strategy for the initial approach (including potentially making the initial approach public to increase the likelihood that the meeting will be postponed due to lack of target stockholder support for the initial transaction).
Despite this general rule, there are two relatively common scenarios in which there is no (or a more limited) fiduciary out in the definitive agreement:
- OPENLANE transactions: In these transactions (named after the eponymous Delaware case that blessed the structure under Unocal/Omnicare), written consents from target stockholders representing the requisite stockholder approval for the merger are delivered in conjunction with the signing.[3] The target still files an information statement with the Securities and Exchange Commission (SEC), but the fiduciary out generally terminates as soon as the written consents are delivered. This structure can be a valuable tool for targets with a relatively consolidated stockholder base or a class of high-vote shares, particularly where the parties determine not to apply a “majority of the minority” vote requirement to the transaction.
- “Force the vote” transactions: In these transactions, the target board has the right to change its recommendation in response to a superior proposal but no ability to unilaterally terminate the definitive agreement to accept the superior proposal, which means that the target may not be able to terminate the definitive agreement until after its stockholder meeting (assuming the stockholders follow the board’s recommendation and vote the deal down). This structure is most common in transactions featuring all-stock or mostly stock consideration. The “force the vote” deal protection can be particularly thorny to overcome if the target has large stockholders who can be asked to sign voting agreements.[4] That being said, if the topping bidder is willing to make a highly attractive bid, the force the vote should only be a speed bump, not a roadblock, to the topping bid.
2. Closely evaluate the process roadmap in the existing definitive agreements.
The existing acquisition agreement between the target and existing buyer (which will be publicly disclosed) will include a “roadmap” of how and when the target can engage with a topping bidder, what procedures the target must go through in order to accept a topping bid, and what other deal protections the existing buyer has before its acquisition agreement may be terminated in favor of a topping bid.
Therefore, even if the fiduciary out provisions are technically available, actually utilizing them successfully as a topping bidder requires careful adherence to the requirements of the existing acquisition agreement. This includes matters such as:
- Does the transaction have an initial “go-shop” period in which a lower break fee is payable and fewer hurdles apply to commencing discussions with the target? If so, time is of the essence – a go-shop period generally only remains in place for a short time, and a potential topping bidder will need to meet deadlines and go through additional procedural hoops in order to be eligible to pay a lower fee.
- What is required to unlock the “window shop” exception to the nonsolicit, which affords the topping bidder diligence access and an ability to engage in discussions and negotiations with the target?
- What constitutes a superior proposal that enables the target board to ultimately change its recommendation and/or terminate to accept the superior proposal? Is it focused solely on the financial elements of the topping bid, or also the likelihood of the topping bid to be completed?
- What notice rights is the existing buyer entitled to in the case that a topping bidder makes an initial proposal and with respect to ongoing negotiations with the topping bidder? Note that even an approach that doesn’t constitute a superior proposal will likely require notification to the original buyer, so even a preliminary overture can trigger merger agreement provisions for the target.
- What match rights are afforded to the existing buyer? As in baseball, a tie goes to the runner: targets typically can only terminate to accept a superior proposal; if the existing buyer matches the topping bidder’s proposal (on a risk and closing certainty adjusted basis), the target cannot go with the topping bidder.
- What fiduciary determinations does the target board need to make, and when? What advisors must the target board consult with in connection with such fiduciary determinations?
- What is the break fee (which is effectively borne by the topping bidder)? Are there other payments that become due and payable upon the termination of the existing deal beyond the break fee (reimbursement, tail fee)?
- If there are existing voting agreements with target stockholders, do these agreements restrict direct engagement with those stockholders? What are the exceptions, if any? Stockholders, unlike directors, aren’t bound to a fiduciary out, so voting agreements may be more restrictive than the deal protection provisions in the acquisition agreement itself.
3. Follow the rules!
The roadmap agreed between the target and the original buyer must be followed by both the target and topping bidder. Most public company merger agreements provide that a fiduciary out may not be exercised if the topping bid arose out of a breach (sometimes negotiated to be a “material breach” or “willful and material breach”) of the no-shop provisions by the target or any of its representatives. Given this, it is essential that the topping bidder instructs all of its directors, officers, advisors and other representatives only to engage with the target and its representatives in close coordination with the advisor team, as errant interactions with the target can kill a deal jump before it ever gets off the ground. The topping bidder – if successful – becomes the successor to any claims regarding how the target ran its process, so any missteps by the target, especially with a jilted original buyer, will be scrutinized more heavily than in a plain vanilla transaction.
4. Evaluate any existing confidentiality or other agreements between the topping bidder and target.
If the topping bidder is party to a confidentiality or other similar agreement[5] with the target, it is critical to evaluate these agreements in advance to ensure they don’t preclude the topping bid (or permit only private, but not public, approaches). Many modern standstill provisions include an automatic fallaway in the event the target signs a definitive agreement providing for a change of control transaction, or at a minimum permit private acquisition proposals to be made to the target’s board – but the exact provisions are key.
Also, don’t assume that just because there is no express standstill provision in a confidentiality agreement or commercial agreement that there are no applicable restrictions. The “use” restrictions in a confidentiality agreement (or an existing commercial agreement if the parties are already collaborators or partners) can often serve as a “backdoor standstill” if the provision restricts the use of confidential information already in the topping bidder’s possession other than for “negotiated transactions” or other specified purposes that do not encompass a public topping bid.
5. Formulate economic terms of the topping bid that will clearly constitute a superior proposal.
In general terms, the topping bid must have a greater risk-adjusted value than the existing transaction in order to constitute a superior proposal. A few key considerations:
- Cash is generally king. If jumping an all-stock or cash and stock deal, offering all cash can be a compelling differentiator, particularly if the existing buyer’s share price (and accordingly the value of the existing deal consideration) has fallen since the initial announcement of the transaction, or the target’s assessment of the future upside in the buyer’s share price can be argued to be based on unrealistic assumptions.
- Not all stock is created equal. It is not fatal to the topping bidder’s chances if the topping bidder determines that all or a portion of its bid must comprise topping bidder stock, but extra care must be taken to ensure that such stock is not viewed negatively by the target board.[6] Positive factors are:
- Including a detailed synergy and value-creation assessment in the initial proposal to validate the benefits the target stockholders will enjoy from receiving stock in the combined company.
- Ensuring that the topping bidder stock will be fully tradable at closing.
- Structuring the proposed transaction so no buy-side stockholder approval is required to authorize the issuance of topping bidder stock.[7]
- Structuring the proposed transaction so that issuing the topping bidder stock does not meaningfully increase the overall closing timeline relative to the initial transaction.
- Assess regulatory risks and expected timing. If the existing transaction has little to no regulatory risk, but the topping bid does, this likely means that the topping bidder will need to offer a higher topping bid than if the regulatory risks were equivalent. Regulatory risk includes not only the risk that a regulator could ultimately decline to approve a transaction, but also the risk that the approval process will take a longer time than an available alternative (e.g., as a result of an expected antitrust investigation or “second request” or a required foreign direct investment approval in a slow-moving jurisdiction). Also consider how close the existing deal is to closing – if closing is only weeks away, a higher bid may be required to entice the target board to drop the bird in hand.
- Consider that the target may counter and the likelihood that the original buyer will match. Topping bidders must balance the desire to deliver a knockout punch through the initial proposal against the potential need to bump its initial proposal. Topping bidders should carefully analyze the existing buyer’s likely ability and willingness to increase its original proposal and consider that, in deal jump situations, existing buyers are sometimes likely to pay more than they would have in a pre-signing competitive auction (where they may have walked away at a lower price) to “keep” the target.
6. Determine other terms and contents of the initial bid package (and how close to ‘complete’ the initial bid package will be).
In addition to reviewing the headline value of a topping bid, the target board and its advisors will also assess the speed and certainty of the topping bidder’s proposed transaction, as demonstrated by the completeness of the topping bidder’s initial proposal, the topping bidder’s level of preparation, and its ability and desire to move quickly to execute the competing transaction.
Accordingly, when making an initial approach to the target, the topping bidder must weigh whether to deliver a substantially complete initial proposal, which could form the basis in and of itself for the target board to make a superior proposal determination (the strongest approach), or whether to make a more limited proposal that is sufficient for the target board to provide “window shop” access to the topping bidder but does not have all the materials that would be required for a formal superior proposal determination (e.g., perhaps no existing acquisition agreement markup is provided).
The strongest topping bid will offer:
- Compelling legal terms – Include markups of the existing definitive agreements (not just the main acquisition agreement, but any ancillaries, such as equity commitment letters and voting agreements) that are generally the same or more favorable to the target than the existing definitive agreements. This can actually be another critical point of differentiation from the existing deal, particularly if the topping bidder improves deal certainty through enhanced regulatory efforts provisions, inclusion or increase of a regulatory reverse break fee, etc., or has fewer regulatory closing conditions. On the other hand, if the topping bid transaction is subject to additional regulatory approvals or other closing conditions, the topping bidder must have a clear strategy to mitigate that risk.
- Completed diligence – Confirm that the topping bidder has completed its due diligence and has no further due diligence needed, or sets forth a very short list of high-priority remaining due diligence requests.
- Financing, secured – Confirm that the topping bidder either does not require external financing or has arranged fully committed financing for the transaction. (Bonus points if the commitment papers are included with the initial proposal – they will certainly need to be included with the final proposal, which forms the basis of the target board’s determination that the topping bidder’s proposal is superior.)
- Speed and corporate approvals – Confirm that the topping bidder is prepared to expeditiously move to sign and announce a competing transaction – ideally, immediately after the original buyer’s match period expires – and that the topping bidder’s board (and other key corporate constituencies) have authorized the topping bid. In some situations, the topping bid will be submitted as a binding, irrevocable offer that lasts until shortly after the expiration of the original buyer’s match right, complete with the topping bidder’s signatures on the definitive agreements in escrow.
Of course, it may not be possible for the initial topping bid to cover each of these bases, so the topping bidder should be prepared with key talking points to address any target questions about those areas where the topping bidder’s initial proposal could be viewed as incomplete, along with providing a timetable for delivering a complete proposal.
7. Be ready to move quickly within the match period.
If the target deems a topping bid to be a superior proposal, the existing buyer will typically have a three-to-five-business-day match period during which the target is required to negotiate with the existing buyer (if it wishes to negotiate) potential modifications to the existing transaction that cause the topping bid to no longer be superior. There is also generally a shorter, two-to-three-business-day match period afforded to the existing buyer for subsequent topping bidder proposals deemed superior by the target board, so each time a topping bidder ups its proposal, the existing buyer gets another bite at the apple.
If the existing buyer is aggressively trying to retain the deal, it’s highly likely that the topping bidder will need to take an active role during the match period – delivering counterproposals, addressing contract issues, updating its financing package to reflect modified terms, etc. Given how fast these time frames are, it is important that the topping bidder’s board and management are ready and available to work through any modifications to the initial topping bid in real time. The existing buyer will be carefully looking for procedural foot faults that may serve as the basis to disqualify the topping bidder or foreclose the use of the fiduciary out, so even during these often frenetic periods, the target and topping bidder must still carefully adhere to the required procedures.
8. Consider whether to go public with the topping bid.
In most cases, the initial approach to the target will be private. However, if the target rebuffs the initial approach (for example, because a cash/stock topping bid is not viewed as superior), the topping bidder can consider taking its proposal public – subject to any restrictions as discussed above – in order to place additional pressure on the target board to engage via public pressure from the target’s stockholders (or even the potential vote-down of the existing deal by the target stockholders). A topping bidder should consider the benefits of a public approach against the likelihood that such a tactic could make negotiations with the target’s board and management more contentious.
Remember that tone matters. The most aggressive approach to a deal jump by far is launching a hostile tender offer and immediately filing for antitrust approval, such as Paramount’s current hostile topping bid for Warner Bros. Discovery. In that case, the topping bidder is taking its offer directly (and very publicly) to the target stockholders, including disclosing the tenor of prior negotiations with target management. But ultimately, negotiation with the target board and management will still almost certainly be required to get to an inked deal.[8]
It is also important to consider how the facts on the ground will play out in public, particularly if the topping bidder is itself publicly traded. Topping bidders should be ready for significant media attention, potential questions from the topping bidder’s existing investors, analysts and employees, and even stockholder activism if the topping bidder’s investor base disagrees with the strategic rationale for the topping bid. As seen by BHP Group’s short-lived attempt to acquire Anglo American (which itself is currently in the process of acquiring Teck Resources in a merger of equals transaction), a deal jump can raise substantial questions from the topping bidder’s investor base, particularly if the bid is at odds with the topping bidder’s publicly stated strategic priorities.
9. Regardless, prepare for potential public scrutiny.
Another key point to keep in mind is that, in a topping bid scenario, it’s a matter of when – not if – the competing proposal will become public, even if the initial proposal is made confidentially.
Win or lose, the target company will need to disclose its interactions with the topping bidder in its proxy statement, either for the original buyer’s transaction or the topping bidder’s ultimately successful proposal. In the case of a confidentially submitted proposal that loses out to the original buyer, the interloper is often anonymized in the publicly filed deal disclosure (for example, Novo Nordisk was referred to as “Party 1” in Metsera’s initial proxy statement, until its topping bid became public). But unless a confidentiality agreement is in place, that isn’t required. Also, the media will take any descriptive characteristics included in the proxy and often guess at the identity of any anonymized party, which can lead to unwanted public attention for the topping bidder.
10. Be prepared for the existing buyer to punch back – potentially in court.
While in many cases the existing buyer either doesn’t make a counterproposal or is willing to pocket the break fee and part ways (relatively) amicably, Pfizer’s aggressive response to Novo Nordisk’s attempted deal jump at Metsera – which involved two separate litigation complaints, one in federal court challenging the proposed Novo/Metsera combination under the US federal antitrust laws and the second a more conventional action in Delaware Chancery Court chiefly focused on seeking a declaration that Novo’s proposal was not, and could not be, a superior proposal – demonstrates that existing buyers may opt to use litigation strategies to deter would-be topping bidders.
Notably, while Pfizer did sue Novo on a theory of tortious interference with contract, Pfizer did not bring a claim that Novo was aiding and abetting the Metsera directors’ breaches of their fiduciary duties. Such aiding and abetting claims have historically been thought to be one of the biggest risks faced by a potential topping bidder, but recent Delaware case law curtailing the paths for plaintiffs to prevail on such claims may reduce the likelihood that we see them in the future. Moreover, the fact that the Delaware Chancery Court promptly rejected Pfizer’s emergency request for a temporary restraining order should underscore that judges will be reluctant to step in and interrupt any active competitive bidding process.
Conclusion – look before you leap.
Deal jumps aren’t for the faint of heart. They are high pressure, fast paced and can lead to significant public scrutiny. Advance preparation can help a potential topping bidder put its best foot forward – look before you leap!
[1] Other recent topping bids include: H. Lundbeck’s attempted deal jump of Alkermes’ announced all-cash acquisition of Avadel, withdrawn after Alkermes upped its initial offer; Baker Hughes’ successful all-cash deal jump of the all-stock combination of Flowserve and Chart Industries; Herc Holdings’ successful cash and stock deal jump of United Rentals’ announced all-cash acquisition of H&E Equipment Services; and an unspecified financial sponsor’s failed attempt to jump Everbridge’s all-cash sale to Thoma Bravo, which resulted in Thoma Bravo significantly increasing its cash offer price.
[2] It generally takes 10 to 12+ weeks after announcement to obtain target stockholder approval in a one-step merger, assuming no SEC comments on the target’s proxy statement, although motivated parties can dramatically accelerate this timing (e.g., Pfizer/Metsera obtained stockholder approval in only 7.5 weeks). For two-step transactions (tender offers followed by a back-end merger), the fiduciary exceptions are generally in effect until the tendered shares are accepted by the buyer. This doesn’t necessarily mean that the deal jump period is longer in a two-step tender offer transaction; to the contrary, parties often structure transactions as a two-step only when they expect a quick regulatory review period, which often allows tender offer transactions to be completed within six to 10 weeks of announcement.
[3] The OPENLANE structure is only available to companies whose charters permit stockholder action by nonunanimous written consent. Many controlled companies (both founder- and sponsor-led) may permit this structure.
[4] To avoid Omnicare issues (i.e., deal protections that render stockholder approval a fait accompli), typically parties will provide that voting agreements fall away entirely in the event of a change in board recommendation or are reduced via “cutback” provisions such that only 30 – 35% of the outstanding voting power can remain subject to a voting commitment, even if the stockholders delivering the voting agreements hold more than 30 – 35% of the voting power.
[5] For public biotechnology companies, a key place to look is existing collaboration, supply and other partnership agreements with the would-be target, which often have extensive confidentiality provisions that could effectively prevent the bidder from using the target’s information in a potential bid and thereby preclude the topping bidder from making a proposal publicly (or, in some cases, at all) without the target’s prior consent.
[6] For example, in 2025, Herc Holdings successfully jumped the all-cash United Rentals/H&E Equipment Services deal by offering a cash and stock mix.
[7] This strategy, while attractive to the target board, can create issues with the topping bidder’s stockholder base. For example, Carl Icahn led a sustained activism campaign against Occidental Petroleum following its successful cash and stock deal jump of the all-stock acquisition of Anadarko by Chevron. Occidental carefully structured the deal to avoid an Occidental stockholder vote at the time of the deal, which Icahn attacked.
[8] Warner Bros. Discovery’s entry into a definitive merger agreement with Paramount is a condition to the consummation of the Paramount tender offer.
