Definition of the standstill agreement
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 the shares of the target company. A standstill agreement can effectively block or stop the process of a hostile takeover if the parties cannot negotiate an amicable settlement.
The agreement is all the more important as the tenderer 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 the shares of the target company.
- A standstill agreement can effectively block or stop the process of a hostile takeover if the parties cannot negotiate an amicable settlement.
- A business that is under pressure from an aggressive bidder or activist investor finds that a standstill agreement is helpful in blunting the unsolicited approach.
Understanding standstill agreements
A business that is under pressure from an aggressive bidder or activist investor finds that a standstill agreement is helpful in blunting the unsolicited approach. The deal gives the target company more control over the transaction process by prescribing the bidder or investor the ability to buy or sell the company’s stock or run proxy contests.
A standstill agreement can also exist between a lender and a borrower when the lender stops requiring a scheduled payment of interest or principal on a loan in order to give the borrower time to restructure its liabilities.
A standstill agreement is a form of anti-takeover measure.
In the banking world, a standstill agreement between a lender and a borrower interrupts a troubled borrower’s contractual repayment schedule and forces certain actions 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 some value of the loan. In a foreclosure, the lender may not receive anything. By working with the borrower, the lender can improve their chances of getting paid off some of the outstanding debt.
Example of a standstill agreement
A recent example of two companies that have signed such an agreement is Glencore plc, a commodities trader based in Switzerland, and Bunge Ltd., a US agricultural commodities trader. In May 2017, Glencore made an informal move to purchase Bunge. Soon after, the parties reached a standstill agreement that prevents Glencore from accumulating stock or making a formal offer on Bunge until a later date.
In 2019, video game retailer GameStop signed a standstill deal with a group of investors who wanted changes in corporate governance, believing the company to have more intrinsic value than the stock price. action did reflect it.
Other standstill agreements
In other areas of business, a standstill agreement can be virtually any agreement between the parties in which the two agree to stay the current matter for a specific period of time. It could be an agreement to postpone scheduled payments to help a company cope with difficult market conditions, agreements to stop production of a product, government-to-government agreements or many other types. arrangements.