Definition - What does Standstill Agreement mean?
A standstill agreement provides various levels of protection and stability to a target firm in a hostile takeover and encourages an orderly sale process. It refers to an agreement between the parties to refrain from taking any further action.
For example, a firm may agree to refrain from making further attempts to take over a target firm for a specified period, or a financial institution may agree not to call bonds or loans when due.
Divestopedia explains Standstill Agreement
A standstill agreement is an agreement that preserves the status quo. It is an agreement between the target and the bidder that prevents the bidder from making an offer to purchase the target without first obtaining its consent. It may be added as a provision in the confidentiality agreement and is executed before obtaining due diligence material. A standstill agreement aims at preventing hostile offers, and it provides a potential remedy in case the bidder uses confidential information to launch a hostile bid in cases where the parties cannot reach a mutual agreement on the terms of sale.
As a hostile takeover defense mechanism, the target firm can acquire a promise from an unfriendly bidder to limit the amount of stock that the bidder can purchase or can hold in the target firm. This gives the target firm time to build up other takeover defense strategies. The target firm may, in exchange, buy back the prospective acquirer’s stock holdings in the target at a premium. The target firm may offer some other incentive, such as a seat on the board of directors. A standstill agreement can also be an agreement between the parties not to deal with other parties for a specified period of time while negotiating with each other. It can also be used as an alternative to bankruptcy or foreclosure.
In financial institution cases, the original repayment schedule is altered to give more time to the borrower, which allows the lender to salvage some value from the loans.
Acquisition Growth Strategies for Middle Market Companies
Join thousands of others with our weekly newsletter