In connection with proposed mergers and acquisitions of public companies, the target company often requests that the potential acquiror enter into a standstill agreement providing protection of the public target from unwanted takeover attempts by the potential acquiror. Standstill agreements provide various levels of protection and stability to the target company and its board of directors to conduct an orderly sale process. Such standstill agreements are typically made part of the confidentiality agreement entered into by the parties prior to the exchange of proprietary, non-public information for purposes of the acquiror’s due diligence investigations. The rationale for the target company’s request for a standstill agreement is simple—the target wants the process to be consensual and the terms mutually agreed upon. So, before providing confidential information about its business and operations and before the potential acquiror has committed to enter into a definitive acquisition agreement, the target company wants to ensure that the potential acquiror does not use the confidential information to launch a hostile bid of the target if the parties cannot reach a mutual agreement on the terms of the sale.

This article (i) describes and analyzes recent case law about standstill agreements, (ii) provides an overview of the legal considerations and duties facing the target company’s board of directors in connection with a standstill agreement, (iii) provides an example of a broad and target friendly standstill agreement, and (iv) offers practice pointers regarding some of the key terms of a standstill agreement, typically subject to negotiation and consideration of the parties.

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