Standstill Agreement Definition
A standstill agreement refers to a contract that decides how an organization’s bidder can buy, sell, or vote stock of the target entity. In case, organizations are unable to make negotiations for a friendly deal, a standstill agreement can hype or put a fullstop on the hostile takeover. Such agreements are of immense value as the bidder would be able to know about the crucial financial information of the target firm.
A standstill agreement can be referred to as a type of anti-takeover policy.
A Little More on What is a Standstill Agreement
A standstill agreement saves a company from being exposed to an aggressive takeover or activist investor. It further offers the target firm with an advantage of having more control in the deal by advocating the bidder to purchase or sell the company’s stock, or initiate proxy contests.
A standstill agreement can also take place between a lending and borrowing party where the lending party doesn’t ask for a timely interest or principal payments so as to offer the borrowing party to revamp its obligations.
In the banking sector, a standstill agreement can enable the borrower in taking a pause from the repayment of loan, and asks him or her to abide by certain policies. During the standstill timeline, negotiation of an exclusive contract is made which ultimately changes the actual schedule of repayment of debt. It can be used as a substitute for bankruptcy where the borrowing party is unable to make repayment for the loan. This standstill agreement permits the lending party to recover some amount from the debt. The lender may not get anything in return in case of a foreclosure. When the lender deals with the borrower, he or she can have better chances of having repayment of outstanding loan.
Key points to remember
- A standstill agreement refers to a kind of contract that comprises of provisions that rule how a bidder can buy, sell, or do voting for the stock of a target firm.
- A standstill agreement has the capability to halt a hostile takeover in case the parties are unable to make negotiation for a friendly agreement.
- A firm that has a pressure from an aggressive bidder takes help of a standstill agreement in weakening the unsought proposal.
Example of a Standstill Agreement
For example, Glencore plc which is a Switzerland-based trader of commodities, and a US based trader of agricultural commodities called Bunge Ltd fit in the standstill agreement. Glencore followed an informal strategy to acquire Bunge in May 2017. And gradually, both companies followed the standstill agreement so as to not allow Glencore plc from gaining shares or initiating a bid formally for Bunge until a subsequent timeline.