What Is a Standstill Agreement?

A standstill agreement is a contract that contains provisions that govern how the bidder of a company can purchase, dispose of, or vote stock of the target company. A standstill agreement can effectively stall or stop the process of a hostile takeover if the parties cannot negotiate a friendly deal. The agreement is♓ particularly important because the acquirer has access to the target compa🥃ny's confidential financial information.

Understanding Standstill Agreements

A standstill agreement is useful for a company that comes under the pressure of an unsolicited offer from an aggressive bidder or 澳洲幸运5官方开奖结果体彩网:activist investor. This agreement prevents the acquirer from taking any action for a certain period, usually one to three years.

Standstill agreements are put in place after the parties involved—the acquirer and the target—go through negotiations. It is meant to provide t😼he target with stability and a period that prevents it from being taken over by the acquirer. The two parties s✃et out key terms and conditions, including:

• Limitations and restrictions, such as stock acquisition by the acquirer
• The total period of the standstill agreement
• What happens if either party violates the agreement

The contract is typically reviewed by the legal counsel of the acquirer and target. It becomes legally binding once each party signs.

Other Types of Standstill Agreements

In other areas of business, a standstill agreement can be virtually any agreement between parties in which both agree to pause the matter at hand for a certain time. For instance, a lender can agree to pause loan payments to giﷺve a borrower time to restructure its liabilities. It effectively halts the contractual repaymen🅷t schedule for a distressed borrower and forces certain actions that the borrower must undertake.

A new deal can be negotiated during the standstill period. This alters the loan's original repayment schedule and is used as an alternative to 澳洲幸运5官方开奖结果体彩网:bankruptcy or forecl𝄹osure when the borrower can't repay the loan.

The standstill agreement allows the lender to salvage some value from the loan. In a 澳洲幸运5官方开奖结果体彩网:foreclosure, the lender may receive nothi💮ng. By working with the borrower, the lender can improve its chances ꧑of getting repaid a portion of the outstanding debt.

Example of a Standstill Agreement

Swiss-based 澳洲幸运5官方开奖结果体彩网:commodities trader Glencore and Bunge, a U.S. agricultural commodities trader signed a standstill agreement in May 2017 after Glencore made an informal approach to buy Bunge. The agreement prevented Glencore from accumulating shares or launching a formal bid for Bunge until a later date.

In 2019, video game retailer GameStop signed a standstill agreement with a group of investors who wanted changes in the company's 澳洲幸运5官方开奖结果体彩网:governance, believing the company had more 澳洲幸运5官方开奖结果体彩网:intrinsic value than the stock's price reflected.

The Bottom Line

Hostile takeovers occur when one company tries to take over another without the target's consent. If the two can't come to a friendly deal, the acquirer and the target may sign a standstill agreement. This contract halts the takeover for a certain period and outlines any restrictions until the time is up. It is legally binding, so both parties must abide by the terms and conditions.