An agreement to effect a merger in which the target is a public company usually requires the target’s board of directors to recommend that stockholders vote in favor of the merger. Exceptions to this recommendation requirement, known as "fiduciary outs," seek to reconcile the target board’s fiduciary duty to obtain the best deal for its stockholders with the buyer’s need for assurance that the deal will proceed to closing.

Despite fierce negotiations surrounding fiduciary outs, the resulting provisions generally fall within a range of known parameters. Traditionally, merger agreements contain either a narrow fiduciary-out limited to the target’s receipt of a superior proposal or a broad fiduciary-out exercisable for any reason determined by the board in the discharge of its fiduciary duties. However, as analyzed in a Gibson, Dunn & Crutcher study of large public-company merger agreements in 2012, "No-Shops and Fiduciary Outs: A Survey of 2012 Public Merger Agreements," parties have been negotiating "intervening event" fiduciary-out provisions in merger agreements with increasing frequency (34 of the 59 agreements surveyed included an "intervening event" provision). These provisions permit the target’s board to change its recommendation if the target encounters an "intervening event" during the period between the deal’s signing and closing. The definition of "intervening event" varies depending on the deal, but most require that the circumstance or event be material and unknown to the target’s board on the date of the agreement. Other common definitional qualifiers include that the event or circumstance not be reasonably foreseeable and that it first arise after the date the merger agreement was signed. The intervening event fiduciary-out thus may present an appealing compromise that allows buyers to gain some certainty regarding the target board’s backing of the deal while also giving the target board meaningful flexibility to alter its recommendation in response to unforeseen events that arise during the post-signing period.

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