Forget the Super Bowl—the most thrilling contest last winter took place in a boardroom. Four weeks shy of a closing shareholder vote for a Blackstone Group affiliate to acquire Equity Office Properties Trust for $48.50 a share, a competing bid came from public REIT Vornado Realty Trust (NYSE: VNO). On Jan. 17, Vornado joined with investors from Starwood Capital Group and Walton Street Capital to present a bid for $52 a share. With that, the bidding war began.

Blackstone's match point for Equity Office's assets came Feb. 6, the evening before Equity Office's shareholder vote. Blackstone entered a final bid of $55.50 per share, $7 higher than its beginning entry, and made the deal valued at more than $39 billion including debt. On Feb. 7, Vornado pulled out of the running hours before the Equity Office shareholder vote. Shareholders approved the Blackstone bid and the transaction closed two days later.

There have been several REIT bidding wars in the past year. Recently, a bid battle developed following the Jan. 17 announcement of Canadian firm Brookfield Asset Management's (NYSE: BAM) plans to acquire The Mills Corporation (NYSE: MLS) for $1.35 billion. On Feb. 6, Simon Property Group (NYSE: SPG) paired with hedge fund Farallon Capital Management LLC to bid approximately $1.6 billion for Mills. By Feb. 13, Mills announced the Simon/Farallon bid to be superior to BAM's. By Feb. 16, Mills' board had accepted the Simon/Farallon offer and the entities announced their intentions to merge in a transaction expected to close during the second quarter.

Meanwhile, this winter also saw rival bids for the Canadian Sunrise Senior Living REIT (NYSE: SRZ, TSX: SZR.UN). On Jan. 15, Ventas, Inc. (NYSE: VTR) announced a definitive agreement to purchase Sunrise for $2.1 billion Cdn ($1.8 billion U.S.) However, Health Care Property Investors, Inc. (NYSE: HCP) announced Feb. 14 that it too would make a bid for Sunrise for $18 Cdn per share ($15 U.S.), which is a 20 percent premium to the Ventas proposal. At press time, the victor was undetermined.

James Hanks, a partner with Venable LLP, advised Equity Office on Maryland law and was present during the company's vote (Equity Office is incorporated in Maryland). Hanks says a bidding war's key factors include the type of sale, the board and shareholder sentiments, and the deal agreements drafted between sellers and potential acquirors. When a company has formally announced it's up for sale, a more public auction for assets is held, run by investment bankers.

"Interested parties will be able to submit their bids to bankers, who will qualify the bidders," Hanks says. "The lawyers will typically insist on confidentiality and standstill agreements and the bankers will give bidders a certain time period to respond. Finally, the investment bankers will solicit bids, and there will be a couple of rounds of bidding, until the final two parties are asked for their final bid. The board will then decide which bid is best."

Matthew Ostrower, managing director of research and REIT analyst with Morgan Stanley, says this also changes the amount of information available to interested parties. Mills announced it was up for sale, whereas Equity Office never formally announced it would solicit bids. "The Mills transaction is different from EOP because Mills announced exploration of strategic alternatives and ran a process in which potential buyers were given access to significant financial data and asset information," Ostrower says. "Interested parties could generally get access to the information if they wanted, and it's safe to assume potential buyers like Simon and BAM were very well informed prior to making bids."

The terms of a merger agreement are negotiated by the selling company's board and the potential acquiror, Hanks says. Most merger agreements provide an opportunity for other interested parties to bid on the deal before the shareholder vote.

Merger agreements also set termination fees in the event a seller accepts a competing bid. According to UBS Investment Bank analyst James Feldman, this was a shrewd point of Equity Office's agreement with Blackstone. "EOP was on auto-pilot. The board set up a deal where the initial termination fee was low enough to entertain other bids."

On the day of the shareholder vote for an approved transaction, the percentage required for approval is based on the majority of those shares entitled to vote, not the majority of shares that actually voted, Hanks says. Nonetheless, it is rare for shareholders to vote down a board-approved transaction.

"The board of a company that is being sold generally must get the best value reasonably attainable for the shareholders. These boards have a lot of latitude in the process of how they go about doing that," Hanks says.