Right of First Offer

A right of first offer (ROFO) is a contractual right that gives one party the first opportunity to buy something before it is offered to anyone else. In the context of mergers and acquisitions, an ROFO gives the target company's shareholders the right to sell their shares to the acquiring company before the shares are offered to the public.

ROFOs are often used as a way to prevent hostile takeovers. By giving the target company's shareholders the first opportunity to sell their shares, the acquiring company can make it more difficult for another company to come in and make a higher offer.

ROFOs can also be used to facilitate friendly mergers and acquisitions. By giving the target company's shareholders the first opportunity to sell their shares, the acquiring company can avoid having to compete with other potential buyers.

There are a few different ways that ROFOs can be structured. In some cases, the ROFO gives the target company's shareholders the right to sell their shares at a fixed price. In other cases, the ROFO gives the target company's shareholders the right to sell their shares at a price that is equal to the highest price that is offered by any other potential buyer.

ROFOs can be a valuable tool for companies that are considering merging or being acquired. However, it is important to note that ROFOs can also have some drawbacks. For example, ROFOs can make it more difficult for a company to sell its shares to the public. Additionally, ROFOs can give the acquiring company too much power over the target company's shareholders.

As a result, it is important to carefully consider the pros and cons of ROFOs before entering into one.