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Shoppers Drug Mart in downtown Toronto, July 15, 2013.Gloria Nieto/The Globe and Mail

Shareholders of Shoppers Drug Mart Corp. seem happy enough with the $12.4-billion takeover bid from Loblaw Cos. Ltd., with its tasty premium, but they could be forgiven for wondering if the company left some money on the table.

Shoppers yesterday said it agreed to the price in one-off negotiations, rather than as the result of an auction. The transaction includes an agreement from Shoppers not to look around for a better price.

Generally, shareholders prefer that you check around to get the top bid when selling a company. If the board can't do it before the deal, because of secrecy concerns or because the acquirer insists, often the target negotiates what is called a "go shop" clause to enable the board to check the market for a better offer after the fact.

But in Shoppers-Loblaw, there was no market check right before the agreement was struck and there won't be one after the fact because Shoppers agreed to a so-called "no shop" clause. Shoppers explicitly agreed not to talk to other potential bidders. Shoppers said it had been considering its options for a couple years, so it may be able to point to its analysis in that process as a kind of market check. And for what it's worth, most analysts seem to think this bid is the likely winner.

It's no surprise that Loblaw would ask for a no-shop clause, and may have even offered a bit more money to secure one.

But what rationale would Shoppers have for agreeing to it, and how can it justify this to shareholders? One senior merger lawyer supplied a few possible answers. (The lawyer asked to remain anonymous, pointing out that while he is not involved in the transaction now, that could change.)

For starters, shareholders might want a market check, but there's no rule that says you have to do one immediately before or after an agreement. What's more, the Supreme Court of Canada ruled when BCE Inc. was in play that the board's only duty is not to shareholders, but to the whole entity – employees, bondholders, communities. In the same vein, a full on auction can get in the way of running the business, hurting the corporation. So if the board thought that selling to Loblaw, which plans to keep Shoppers as a standalone, is a better overall outcome than selling for a higher price to another bidder, that is defensible under the BCE precedent.

The board did negotiate a relatively low break fee of $300-million, payable to Loblaw if another bidder comes in and steals Shoppers away. That's only 2.4 per cent of the deal value, at the low end of the general range. So it shouldn't dissuade a really motivated suitor.

What recourse do shareholders have?

They get a vote, because the transaction requires the approval of investors holding two-thirds of Shoppers shares. Knowing that, the board of Shoppers would feel comfortable accepting the offer because shareholders would have the final say.

"If Loblaw thinks it is done negotiating price, it better think again," the lawyer said. "The Shoppers board was undoubtedly keenly aware of that, and took comfort from the fact that shareholders can 'just say no' – or more likely, 'just say not enough.'"

(Boyd Erman is a Globe and Mail Capital Markets Reporter & Streetwise Columnist.)

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