Standstill agreement refers to any contract by and between the bidder and his target company that stays or stops the ongoing process of a hostile takeover in business at least for a specified period of time. The target company either promises to buy, usually at a hefty premium the stock of shares held by the hostile bidder, or asks the bidder to limit its holdings. This stay arrangement will provide the takeover target company with the much needed sigh of relief to take preventive measures for checkmating corporate hostile takeovers. No wonder, standstill agreement is often used among the hostile takeover defense options.
Alternatively this allows the parties negotiating for a merger or acquisition to concentrate on due diligence and work out the details of a takeover on cards.
When a target company enters into a standstill agreement, its common or ordinary shareholders stand to lose in terms of investment returns since there is no appreciation in the value of stock that could have materialized in the event of a takeover. Share prices rise even on the attempts of a takeover. However, with the signing of a standstill agreement, the stock prices of the target concern dip to its original level.
