What This Means: “Deal jumping” occurs when a new bidder makes a competing offer after a deal is announced or signed, presenting a higher or better-structured proposal. This can force boards, sponsors, and strategic buyers to reassess the deal, their fiduciary duties, and protections in place.
In mid-market deals, these situations are less common than in large-cap transactions, but they do happen — especially when deal protections are lighter, financing is accessible, and a competitor sees strategic opportunity.
Common Challenges:
- Targets are bound by deal protections like no-shop clauses, matching rights, termination fees, and fiduciary-out exceptions, but boards can still consider superior proposals
- Topping bidders sometimes underestimate the importance of deal certainty, financing, and regulatory approvals compared to just offering a higher price
- Original buyers may rely too heavily on break fees without maintaining strong process discipline or effective shareholder communication
- Boards can face litigation risks if information flows are mishandled
- Public bidding dynamics can trigger “auction” effects, affecting employee confidence, customer perception, and market sentiment
Real Deal Context: Occidental Petroleum vs. Chevron / Anadarko (2019):
- Chevron initially had a signed agreement to acquire Anadarko
- Occidental stepped in with a $57B cash-and-stock offer, improving financing certainty (including Berkshire Hathaway support) and better terms
- Anadarko’s board ultimately switched to Occidental, paying Chevron a $1B break fee
- This is a textbook example of a successful topping bid, illustrating how structure, certainty, and strategic financing can outmaneuver a signed deal
Suggested Success Factors:
- For topping bidders: Present fully financed terms with improvements over the existing agreement (e.g., covenants, closing conditions, reverse break fees). Demonstrate the ability to close faster or with fewer hurdles.
- For incumbent buyers: Negotiate clear no-shop provisions and proportional break fees. Maintain rigorous process discipline and clear communication with shareholders.
- For boards: Document deliberations, seek third-party fairness opinions to withstand legal or shareholder challenges. Carefully manage messaging to employees, investors, and the market to protect deal value.
Share Your Perspectives: Deal jumping and topping bids are high-stakes maneuvers requiring strategy, foresight, and solid legal guidance. Have you been on either side of a topping bid? We would be interested to know how you navigated through the challenges?
