Standstill Agreement
From Wikipedia, the free 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.
