Standstill Agreement - Explained
What is a Standstill Agreement?
Written by J. Mance Gordon
Updated at April 20th, 2024
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What is a Standstill Agreement?
A standstill agreement is a type of anti-takeover measure. More specifically, it refers to a contract that decides how an organizations takeover bidder can buy, sell, or vote stock of the target entity. When organizations are unable to negotiate a friendly deal, a standstill agreement can put a full stop on the hostile takeover.
- 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.
How does a Standstill Agreement Work?
A standstill agreement saves a company from being exposed to an aggressive takeover or activist investor. It further gives the target firm the advantage of having more control in the deal by limiting the bidder ability to purchase or sell the company's stock or initiate proxy contests.
A standstill agreement can also take place between a lending and borrowing parties 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.