Topping Bid
A topping bid is an acquisition proposal made by a competing buyer that exceeds the price or terms of a previously announced merger agreement, triggering the target board's obligation to evaluate whether the new offer constitutes a superior proposal.
A topping bid arrives after a target company has already signed a merger agreement with a first buyer. The competing acquirer — sometimes called a 'white knight' if welcomed by the target, or a hostile interloper if the target prefers the original deal — submits a proposal at a higher price or with materially better terms, seeking to displace the signed deal.
When a topping bid is received, the target board must evaluate whether it constitutes a 'superior proposal' under the terms of the existing merger agreement. This analysis requires the board to compare the economic terms, conditionality, certainty of close, and regulatory risk of the competing offer against the signed deal. If the board and its advisors conclude in good faith that the new offer is superior, the existing merger agreement's no-shop provision requires the target to notify the original buyer and provide it with a match right period — typically three to five business days.
During the match right period, the original buyer can revise its offer to match or exceed the competing bid. If the original buyer improves its terms sufficiently, the board concludes that the superior proposal no longer qualifies and the original deal remains in place. If the original buyer declines to improve or cannot match the topping bid, the target may terminate the original merger agreement by paying the contractually specified termination fee — typically 3% to 4% of transaction value — and proceed with the new buyer.
Multiple rounds of topping bids can result in a bidding war, where the original buyer and the competing acquirer repeatedly outbid each other until one side concludes that the price no longer supports the investment thesis. Bidding wars create significant value for target shareholders but also introduce execution risk — the eventual winner may pay a price that makes post-closing integration and return on investment extremely difficult.
Topping bids are more common in large public company deals where the announcement of a signed merger agreement attracts attention from strategic competitors or opportunistic private equity buyers. The target's stock price typically rises above the deal price when a topping bid is anticipated by the market, creating an informal pressure for the original buyer to raise its offer.