A standstill agreement protects a company from exposure to an aggressive takeover or activist investor. It also gives the target company the advantage of having more control over the transaction by limiting the bidder`s ability to buy or sell the company`s shares or initiate proxy contests. A standstill agreement may also take place between a lending party and a borrowing party where the lending party does not require timely interest or principal payments to give the borrowing party the opportunity to revise its obligations. In the banking sector, a status quo agreement can allow the borrower to pause the repayment of the loan and ask him to comply with certain guidelines. During the standstill period, an exclusivity contract is negotiated, which ultimately changes the actual debt repayment schedule. It can be used as a substitute for bankruptcy if the borrowing party is unable to repay the loan. This standstill agreement allows the lender to collect a certain amount of debt. The lender cannot recover anything in the event of foreclosure. If the lender deals with the borrower, he or she may have a better chance of repaying the outstanding loan. A standstill agreement is a form of anti-takeover measure.
A status quo agreement is a contract that contains provisions that govern how a bidder of a corporation may buy, sell or vote on shares of the target company. A status quo agreement can effectively block or stop the process of a hostile takeover if the parties cannot negotiate a friendly agreement. The agreement is particularly important because the bidder had access to the target company`s confidential financial information. A standstill agreement tends to favour the existing management team over the rights of shareholders, who might otherwise benefit from a buyback offer that increases the value of their shares. A standstill agreement provides a target company with different levels of protection and stability in the event of a hostile takeover and promotes an orderly sales process. It is an agreement between the parties not to take further action. Another type of standstill agreement occurs when two or more parties agree not to deal with other parties in a particular case for a certain period of time. For example, when negotiating a merger or acquisition, the target buyer and potential buyers may agree not to seek out or participate in acquisitions with other parties. The agreement increases incentives for the parties to invest in negotiations and due diligence, while respecting their own potential activities. In other areas of activity, a standstill agreement can be virtually any agreement between the parties in which both agree to suspend the case for a period of time. This could be an agreement to defer payments intended to help a company survive difficult market conditions, agreements to stop producing a product, agreements between governments, or many other types of agreements. A status quo agreement can be reached between governments for better governance.
As a hostile takeover mechanism, the target company may receive a promise from a hostile bidder to limit the number of shares the offeror can buy or hold in the target company. This gives the target company time to build other defense strategies against acquisitions. In return, the target company can buy back the potential acquirer`s holdings of shares of the target company at a premium. The target company may offer a different incentive, for example. B one seat on the Board of Directors. A standstill agreement can also be an agreement between the parties not to negotiate with other parties during negotiations between them for a certain period of time. It can also be used as an alternative to bankruptcy or foreclosure. At the international level, it may be an agreement between countries to maintain the current situation, where the responsibility owed by one to the other is suspended for a certain period of time. A standstill agreement can be used as a form of defense against a hostile takeover when a target company receives a commitment from a hostile bidder to limit the amount of shares the offeror buys or holds in the target company.
By soliciting the promise of the potential buyer, the target company saves more time to build other takeover defenses. In many cases, the target company promises in return to buy back the shares of the potential acquirer of the target company at a premium. A standstill agreement can be included in the standard language associated with a confidentiality agreement that a potential bidder must sign for a company before being allowed to view a company`s due diligence documents. By including this clause in the contract, the bidder is prevented from engaging in hostile acquisition activities after the failure of an amicable purchase contract. A company under pressure from an aggressive bidder or activist investor will find a status quo agreement useful to mitigate the undesirable approach. The agreement gives the target company more control over the transaction process by requiring the bidder or investor to have the opportunity to buy or sell the company`s shares or launch proxy contests. For example, Glencore plc, a Swiss-based commodity trader, and a US-based agricultural commodities trader called Bunge Ltd are part of the standstill agreement. Glencore pursued an informal strategy to acquire Bunge in May 2017. And gradually, the two companies followed the standstill agreement so as not to allow Glencore plc to acquire shares or make a formal elastic offer until a later schedule. Standstill agreements are also used to suspend the usual limitation period for making a claim in court.  In general, standstill agreements can be used to suspend a transaction for a certain period of time.
For example, a lender and borrower may agree to suspend debt payments for a certain period of time. Common shareholders tend to reject standstill agreements because they limit their potential returns from an acquisition. .