What is a standstill agreement?
A standstill agreement is a contract that contains provisions that govern how a bidder of a company can buy, sell or vote shares of the target company. A standstill agreement can effectively block or halt the process of a Hostile takeover if the parties cannot negotiate a friendly agreement.
The agreement is all the more important since the offeror will have had access to the confidential financial information of the target company.
Key points to remember
- A standstill agreement is a contract that contains provisions that govern how a bidder of a company can buy, sell or vote shares of the target company.
- A standstill agreement can effectively block or halt the process of a hostile takeover if the parties cannot negotiate a friendly settlement.
- A company that is under pressure from an aggressive bidder or activist investor finds a standstill agreement helpful in mitigating the unsolicited approach.
Understanding Standstill Agreements
A company under pressure from an aggressive bidder or activist investor finds a standstill agreement helpful in blunting the unsolicited approach. The agreement gives the target company more control over the transaction process by prescribing the ability of the offeror or investor to buy or sell the company’s stock or initiate proxy contests.
A standstill agreement can also exist between a lender and a borrower when the lender ceases to require a scheduled payment of interest or principal on a loan in order to give the borrower time to restructure their debts.
A standstill agreement is a form of anti-takeover measure.
In the banking world, a standstill agreement between a lender and a borrower interrupts the contractual repayment schedule for a troubled borrower and forces certain actions that the borrower must take.
A new agreement is negotiated during the standstill period, which usually changes the original loan repayment schedule. This is used as an alternative to bankruptcy or foreclosure when the borrower cannot repay the loan. The standstill agreement allows the lender to recover part of the value of the loan. In a foreclosure, the lender may receive nothing. By working with the borrower, the lender can improve their chances of repaying some of the outstanding debt.
Example of a standstill agreement
A recent example of two companies that have signed such an agreement are Glencore plc, a Swiss-based commodities trader, and Bunge Ltd., a US agricultural commodities trader. In May 2017, Glencore made an informal approach to buy Bunge. Shortly thereafter, the parties reached a standstill agreement that prevents Glencore from accumulating shares or launching a formal bid on Bunge until a later date.
In 2019, video game retailer GameStop signed a standstill agreement with a group of investors who wanted changes to corporate governance, believing the company had more intrinsic value than the price of the company. action reflected it.
Other standstill agreements
In other areas of business, a standstill agreement can be virtually any agreement between the parties in which both agree to put the pending matter on hold for a specific amount of time. It can be an agreement to defer scheduled payments to help a company weather difficult market conditions, agreements to stop production of a product, agreements between governments, or many other types of arrangements.