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What is a Standstill Agreement?
Mary McMahon
Mary McMahon
The term “standstill agreement” is used in several different senses in the financial world. All of the uses of this term refer to situations in which the parties involved in a negotiation agree to a temporary halt to remove pressure from the negotiations and provide some room for working out an agreement. Agreeing to a standstill agreement can provide benefits for the parties involved and make more space for a better negotiation process.
In the first sense, a standstill agreement is a commitment from a lender to stop the collections process on a borrower. Lenders may agree to a standstill if a borrower demonstrates an interest in negotiating and reaching a solution and shows that she or he has the ability to make good on the debt if given some room in which to do so. During the standstill agreement, the lender does not pursue further action against the borrower and both parties can prepare a plan for resolving the debt satisfactorily.
Another type of standstill agreement can be seen when two parties are conducting negotiations and agree not to enter into negotiations with a third party. For example, if a company is discussing a merger with another company, both companies may indicate that they will not pursue other options with other companies for a set period of time. This type of agreement is designed to create more opportunities for negotiations, and to avoid situations in which one side or the other feels pressured to act quickly or lose out on the deal.
During hostile takeovers, the target firm may ask for a standstill agreement. In this situation, the bidding firm is asked to stop acquiring shares or the target firm offers to buy back shares at a premium. This allows an opportunity to return to the negotiating table to discuss the possibilities for an arrangement which will benefit the shareholders of both companies. The standstill agreement is one among many topics which can be used to delay a hostile takeover for the purpose of getting a better deal.
When a standstill agreement is discussed, all parties should make sure that the terms of the agreement are clear. An attorney may be retained to write up and agreement for the parties to agree to for the purpose of confirming the details in writing. The terms should include a discussion of how long the agreement applies and how negotiations will proceed once both sides have entered into the agreement.
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
Learn more...
Mary McMahon
Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a WiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.
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![One type of standstill agreement is when two parties are conducting negotiations and agree not to enter into negotiations with a third party.]()
By: vadymvdrobotOne type of standstill agreement is when two parties are conducting negotiations and agree not to enter into negotiations with a third party.
Discussion Comments
@allenJo - I know one or two things about mergers. I worked for a telecommunications company, which was bought by another company, which was bought by another company! It’s like an ecosystem in the ocean with big fish eating up smaller fish.
The biggest fish in this case was the last company in the food chain so to speak. I do remember before they made their move, however, our company entered into a special merger agreement that permitted them to fend off potential offers from other companies.
I don’t know exactly how that works, but they did need the time to work out the final details of the merger, and the big fish was looking rather pretty so apparently we wanted to be “swallowed up” by them. Alas, such are the logistics of wheeling and dealing in the world of mergers and acquisitions.
@Charred - I hate hostile takeovers. What makes corporations think that they can just seize and plunder other companies in the course of their business interests?
Frankly, I think that the maneuver should be outlawed, but it’s good to know that the target company can mitigate the “attack” as it were by buying up a lot of their own shares and asking for a standstill agreement.
My brother started a computer training company some years ago. Part of setting up the company involved buying about twenty computers for his training class.
Well, over time the company didn’t do well, and unfortunately he filed for bankruptcy. The company that sold the twenty computers wasn’t too happy, however, and threatened to sue. I don’t know how much legal standing they would have had –I think my brother would have been exonerated.
However, out of a sense of honor he decided to work out a legal agreement with the company, whereby he would pay them off over a period of time. Of course he didn’t tell the other creditors he was doing that; he just did a special deal with the computer company.
Eventually when he sold his house he paid the company in full for computers purchased. Again, he didn’t need to do it but I think it was the right thing to do.
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