Standstill Agreement
Encyclopedia
A standstill agreement is usually an instrument of a hostile takeover
defense, in which an unfriendly bidder agrees to limit its holdings of a target firm. In many cases, the target firm is willing to purchase the potential raider’s shares at a premium price, thereby enacting a standstill or eliminating any takeover chance. By establishing this provision with the prospective acquirer, the target firm will have more time to build up other takeover defenses.
Common shareholders tend to dislike standstill agreements, because it limits the potential returns on investment
available through takeover. On the other hand, shareholders are typically offered higher holdings and benefits by the target firm.
In May 2000, Health Risk Management, Inc. (HRM), a health care company, resolved issues with Chiplease Inc., Banco Panamericano, Inc., Leon Greenblatt and Leslie Jabine, a shareholder group with approximately 14% of HRM shares. Under the standstill agreement between HRM and these shareholders, HRM agreed that it will allow the shareholder group designation of one director on the HRM board of directors, increase in holdings by about 10%, and voting rights; in return, the shareholder group agreed to dismiss all litigation.
Another type of standstill agreement is an agreement whereby two or more parties agree not to deal with other parties in a particular matter for a period of time. For example, in negotiations for a merger or acquisition, the target and the purchaser may enter into an agreement where they each agree not to solicit or embark on acquisitions from or of other parties. This allows the parties to invest more heavily into the negotiation, due diligence, and details of a potential acquisition.
Takeover
In business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
defense, in which an unfriendly bidder agrees to limit its holdings of a target firm. In many cases, the target firm is willing to purchase the potential raider’s shares at a premium price, thereby enacting a standstill or eliminating any takeover chance. By establishing this provision with the prospective acquirer, the target firm will have more time to build up other takeover defenses.
Common shareholders tend to dislike standstill agreements, because it limits the potential returns on investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
available through takeover. On the other hand, shareholders are typically offered higher holdings and benefits by the target firm.
In May 2000, Health Risk Management, Inc. (HRM), a health care company, resolved issues with Chiplease Inc., Banco Panamericano, Inc., Leon Greenblatt and Leslie Jabine, a shareholder group with approximately 14% of HRM shares. Under the standstill agreement between HRM and these shareholders, HRM agreed that it will allow the shareholder group designation of one director on the HRM board of directors, increase in holdings by about 10%, and voting rights; in return, the shareholder group agreed to dismiss all litigation.
Another type of standstill agreement is an agreement whereby two or more parties agree not to deal with other parties in a particular matter for a period of time. For example, in negotiations for a merger or acquisition, the target and the purchaser may enter into an agreement where they each agree not to solicit or embark on acquisitions from or of other parties. This allows the parties to invest more heavily into the negotiation, due diligence, and details of a potential acquisition.
See also
- EconomicsEconomicsEconomics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
- Mergers and AcquisitionsMergers and acquisitionsMergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
- MicroeconomicsMicroeconomicsMicroeconomics is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources. Typically, it applies to markets where goods or services are being bought and sold...
- TakeoverTakeoverIn business, a takeover is the purchase of one company by another . In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to the acquisition of a private company.- Friendly takeovers :Before a bidder makes an offer for another...
- Industrial organizationIndustrial organizationIndustrial organization is the field of economics that builds on the theory of the firm in examining the structure of, and boundaries between, firms and markets....