TRENDS IN PUBLIC REIT M&A: 2012-2017 20 • Changing or Withdrawing Recommendation. Another common negotiation point relates to whether a target board should have the right to terminate a signed merger agreement based on a circumstance other than a competing offer to allow boards to fulfill their duties to shareholders — so-called “gold in the backyard” cases. Essentially, this refers to a scenario when, after signing a merger agreement, something occurs or is discovered that suggests that target is significantly more valuable than the parties knew at the time the definitive agreement was signed. Approximately 80% of the deals surveyed included some variation of this provision allowing a target board to change or withdraw its recommendation when it would be inconsistent with the board’s duties not to do so. Of these deals, approximately 74% added an additional “intervening event” or “change of circumstances” requirement — generally, requiring a change in facts occurring after the merger agreement is signed that was not reasonably foreseeable. In the vast majority of these deals, the target could change or withdraw its recommendation but had no corollary right to terminate the agreement, though in each case the buyer could elect to terminate in the face of a changed recommendation. It is worth noting, however, that in none of the surveyed deals did a target board rely on this provision to change its recommendation. Considering the relative transparency of the asset class, we do not anticipate these rights to have significant practical meaning in the REIT M&A context. 6. GO SHOPS AND WINDOW SHOPS. While, as discussed above, the typical REIT merger agreement will contain strict “no-shop” provisions that restrict a target from soliciting or even entertaining competing offers, a “go-shop” provision affirmatively empowers target and its advisors to actively solicit a better deal for target shareholders for an agreed period of time immediately following signing, following which the traditional no- shop period begins. If the target board determines that a “superior” offer has been received (subject to the buyer’s ability to match), the target will have the right to terminate the initial definitive agreement and pay the jilted would-be acquirer a termination fee, which is typically lower during the go-shop period than the break- fee payable for termination in connection with a superior proposal during the no-shop. See the discussion below under “Window Shopping” for other variations on the strict “no-shop” construct. Intuitively, buyers are reluctant to expend resources diligencing, negotiating and signing up a definitive merger agreement only to serve as the stalking horse for a go-shop buyer. The vast majority of business combination transactions in the REIT sector thus do not include a go-shop. Since January 2012, 13.0% of overall public REIT transactions included a go-shop and all but one of these were in instances when the related-party nature of the transaction made a go-shop preferable. Go-shop provisions are typically included in one of two types of transactions, either when there is a related-party component to the transaction or when a thorough pre-signing market check was not completed: • Go-shops are quite common in transactions in which the parties are related, often in the context of an external manager acquiring its managed REIT client. A go-shop in this scenario ensures a public and independent process for verifying that the price offered by the external manager, who obviously knows target and its assets better than anyone, is in fact the best price reasonably available. All of the related-party transactions included in our review included a go-shop period, with the go-shop period ranging from 30 to 45 days. Of note, in none of these transactions was a superior proposal received as a result of the go-shop. • Go-shops may also be useful where a target board reasonably concludes that accepting a current and credible cash bid on the table is in the best interests of shareholders — without conducting a robust pre-signing market check. For example, if the cash bid comes at a price per share that represents a meaningful premium both to the current trading price and to management’s own internal estimates for the stand-alone business, the board could conclude that commencing a full-blown auction process at this point is unlikely to produce a higher, equally credible bid and might in fact prompt the current bidder to take its offer off the table. However, in consideration of its overarching duties to shareholders, the board would then insist on a post-signing go-shop period to offset the lack of an exhaustive pre-signing market shop of the company. In stock-for-stock strategic combinations, conversely, the need for a pre-signing market check is less pronounced. A strategic combination, by definition, is a play for the long term; it is not about finding the highest available cash price at a given moment in time. Thus if the board is presented with a strategic combination that, in its view, both fairly values target shares and provides for continued upside in the surviving entity, the board might reasonably determine to approve that transaction without a pre-market check or post-signing go-shop period.