Standstill Agreement
A standstill agreement is a contractual restriction that prohibits a party — typically an activist investor, strategic buyer, or potential acquirer — from acquiring additional shares, making a tender offer, or taking other escalatory actions toward a target company for a specified period.
Standstill agreements are defensive tools used by target companies to control the pace and terms of unsolicited acquisition interest. They are commonly entered into in two contexts: as part of a confidentiality or non-disclosure agreement (NDA) executed when a potential buyer is given access to due diligence materials, and as a negotiated resolution with an activist shareholder who has built a stake and is pressing for change.
In the M&A context, a standstill provision within an NDA restricts a potential buyer that receives confidential information from using that information to make a hostile takeover bid. The buyer agrees that, for a defined period (typically 12 to 24 months), it will not acquire shares above a specified threshold, launch a tender offer, or solicit proxies without board approval. This gives the target board control over any sale process.
A controversial development in Delaware law occurred with the Corwin v. KKR decision and subsequent cases addressing whether standstill provisions must include a so-called don't-ask-don't-waive (DADW) clause — a provision preventing a potential bidder from even requesting a waiver of the standstill without the request itself being disclosed. Delaware courts have scrutinized DADW clauses in the context of fiduciary duties, finding they can impair a board's ability to consider superior offers if enforced too rigidly.
In the activist context, a standstill may be reached as part of a settlement agreement in which an activist receives board representation in exchange for agreeing not to acquire additional shares, run a proxy contest, or take public action against the company for a defined period. These settlements are increasingly common as boards and activists negotiate private resolutions rather than fighting expensive proxy battles.
For investors, a company entering a standstill with a known strategic party often signals early-stage deal exploration, and the expiration of a standstill can trigger renewed speculation about a transaction.