A “Texas shootout” or “Texas showdown” or “Texas buy-sell” (also called “Mexican shootout,” “Russian roulette” and “Armenian handshake") occurs when both parties in a joint venture are interested in buying each other out. There are sealed bids, and the highest bidder wins the bid. The “Texas” terminology originated in the 1980s or early 1990s.
Wikipedia: Deadlock provision
A deadlock provision, or deadlock resolution clause, is a contractual clause or series of clauses in a shareholders’ agreement or other form of joint venture agreement which determines how disagreements on key issues are to be resolved in relation to the management of the enterprise.
Deadlock provisions vary enormously between different countries and with respect to different types of transactions. However, characteristically the format of the provision will be as follows:
1. Certain “key matters” will be designated as matters upon which deadlocks can arise. These will usually be fairly fundamental matters relating to the management and control of the business.
2. The provisions will then indicate if a “key matter” is raised at a certain number of consecutive meetings (occasionally just one meeting, but more often two or three) of the board of directors or other management organ of the business, a deadlock is said to have arisen.
3. The two parties may then be asked to summarise their differences in writing, and ordinarily senior personnel on either side will meet to try and find an amicable resolution to the deadlock. The provisions may require that a mediator may or shall be involved.
4. If the parties fail to find an amicable solution, then the termination provisions will normally operate.
The main focus of most deadlock provisions are the termination provisions. The principle underlying them is that a successful business enterprise should not be destroyed solely because the two partners are unable to agree on a core issue; the value of the business as a going concern should be preserved, and a fair way should be found to allow one party to bow out with fair recompense for giving up their share in the venture.
There are as many different types of termination provisions as the ingenuity of lawyers can create. However, a number of specific types of termination provisions have come to be used fairly regularly in commercial transactions where the parties are of equal standing in the venture, and have acquired characteristically descriptive names.
Russian roulette. A draconian solution to a deadlock, a Russian roulette provision requires one of the two deadlocked parties to serve a notice on the other party, and the serving party will name an all-cash price at which it values a half interest in the business. The party receiving the notice then has the option to either buy the other party out, or sell out to the other party, at that price.
Texas shoot-out. Another dramatic solution to a deadlock, a Texan shoot-out involves each party sending a sealed all-cash bid to an umpire stating the price at which they are willing to buy out the other party. The sealed bids are opened together, and the highest sealed bid “wins”, and that bidder must then buy (and the “loser” must sell) the other half share in the business.
Dutch auction. A variation on the Texan shoot-out (and slightly different from the traditional Dutch auction), the parties send in sealed bids indicating the minimum price that they would be prepared to sell their half share for. Whichever sealed bid is the higher “wins” and that bidder then buys the “loser’s” share at the price indicated in the loser’s sealed bid.
Practical Law Company
Texas shoot out
Also called a Mexican shoot out. It is a variation of a Russian roulette provision (where either party can serve notice on the other offering either to buy the other’s shares or to sell its own shares to the other party at a specified price) and has the effect of terminating a joint venture. It occurs where both parties are interested in buying the joint venture vehicle company and provides that in this case they both submit sealed bids to an “auctioneer” and the party who makes the higher bid buys the company at that price.
In the business world, this type of buy-sell arrangement may be called:
Sudden Death or Suicide
Google Groups: misc.entrepreneus
From: (Paul Krause CIRT)
Date: 10 Dec 1993 09:51:58 -0700
Local: Fri, Dec 10 1993 12:51 pm
Subject: Buyout agreement
Does anyone have sample wording for a buy/sell agreement that I believe is sometimes called a Texas shootout. I am looking for language that basicly says that if I offer to buy you out, you have the right to take me out at the same price and terms. I have looked through partnership books and they all seem to describe agreements that require valuation of the business etc. These seem complicated and prone to problems. I would welcome sources, comments etc.
NYS Supreme Court, Monroe County
Commentators have observed that a buy-sell agreement of the “shoot-out” variety, also variously referred to as a “Texas buy-sell,” or a “Russian Roulette” buy-sell, as this one assuredly is, “can operate in favor of the wealthier party.”
Wayne M. Gazur, The Forgotten Link: “Control” in Section 482, 15
Northwestern J. Inter. L. and Bus. 1, 45 n.170 (1994).
Buy/Sell Shareholder Agreements, Key Practices & Common (Spiral-bound)
by Curtis Sahakian (Author)
Spiral-bound: 11 pages
Publisher: The Corporate Partnering Institute (January 1997)
It includes descriptions and uses of all the different types of Buy/Sell provisions in common use including the “Russian Roulette” Buy/Sell, the “Texas Showdown”, the “Armenian Handshake” and more.
Subject: Texas Shootout
Category: Relationships and Society > Law
Asked by: gatesman-ga
List Price: $20.00 Posted: 27 Aug 2003 19:26 PDT
Expires: 26 Sep 2003 19:26 PDT
Question ID: 249468
I am searching for origins of the term “Texas Shootouts” as used in buy-sell agreements. A Texas Shootout is a type of buy-sell agreement that partners, for instance, use to exit a partnership. Shootouts work in roughly the following way: in a two-person 50-50 partnership, the first partner names a price for half of the partnership and the second partner decides whether to pay that price to the first partner (i.e., buy out the first partner) or be paid that price by the first partner (i.e., be bought out by the first partner).
Corporate Blog UK
21 August 2006
Russian Roulette / Texas Shoot Out
The business world is highly inventive in its creative analogies and terms of violence to colour the black and white pages of corporate documents. This week, Corporate Blawg UK has investigated a system for terminating joint ventures, where the two founding members of the joint venture are in deadlock over the vehicle’s future ownership.
The mechanism of “Russian roulette” is most commonly applied where each member owns 50% of shares and the primary purpose of the joint venture has been successfully completed. This mechanism commences with one member notifying the other member of its offer to sell to that member all its joint venture shares at a specific price. This offer, in a deadlock resolution notice, must then be accepted; otherwise the declining member is obliged to sell all its own joint venture shares to the offeror at the same price.
A variation of this mechanism may be described as “ Texas shoot out” (or “Mexican shoot out”, depending on whether your prefer mescal to mesquite). A Texas shoot out is also most common in a 50:50 joint venture. The process involves both parties submitting a secret and sealed bid to a third party. The party with the lowest bid crumples in agony (and fills its pockets with cash) as it must sell its shares to the higher bidder at the higher price.
Texas (Lone Star State Dictionary) • (0) Comments • Wednesday, September 19, 2007 • Permalink