In the world of mergers and acquisitions, standstill agreements are commonly used as a way to temporarily halt potential takeovers. A standstill agreement is a legal document that lays out the terms of a temporary truce between two companies engaged in an M&A transaction. In the UK, standstill agreements are governed by the Company Law of 2006 and are a common tool in the corporate world.
Standstill agreements are typically initiated by the target company as a way to buy more time to evaluate a potential acquisition proposal. A standstill agreement can give the target company time to gather information, perform due diligence, and consider alternative proposals. The target company may also use a standstill agreement as leverage to negotiate better terms with the potential acquirer.
During the standstill period, the potential acquirer is typically prohibited from purchasing additional shares in the target company or engaging in any activities that could be deemed hostile. This means that the potential acquirer is essentially frozen out of any further action until the standstill agreement expires or is terminated.
One important aspect of standstill agreements in the UK is that they need to meet the requirements of the European Commission’s Merger Control Regulation (ECMR). The ECMR requires that any proposed merger or acquisition that meets certain financial thresholds be submitted for review by the European Commission. As such, standstill agreements in the UK need to be structured to comply with the ECMR to avoid any potential anti-competitive issues.
Another aspect to consider in standstill agreements in the UK is the role of the Competition and Markets Authority (CMA). The CMA has the power to investigate mergers and acquisitions in the UK and can intervene to prevent anti-competitive behavior. As such, companies need to be mindful of the CMA’s role when negotiating standstill agreements.
In summary, standstill agreements are an important tool in the world of mergers and acquisitions in the UK. They provide a temporary truce between potential acquirers and target companies, allowing both parties to evaluate proposals and negotiate better terms. To be effective, standstill agreements need to be structured to meet the requirements of the ECMR and be mindful of the CMA’s role.