Standstill Provision FAQ

A standstill provision is a contractual restriction that prevents a potential acquirer (the "bidder") from taking aggressive actions against a target company during and after confidential M&A discussions. It essentially creates a "standstill" period where the bidder agrees not to make hostile moves.

Why it matters: When a target company shares sensitive information during acquisition discussions (financials, customer lists, strategic plans), it becomes vulnerable. Without a standstill, a bidder could use that information to:

• Launch a hostile takeover bid at an opportune moment
• Accumulate shares on the open market to gain leverage
• Start a proxy contest to replace the board
• Pressure shareholders directly

Real-world example: Company A is exploring a friendly acquisition of Company B. Company B shares detailed financials showing a temporary dip in earnings. Without a standstill, Company A could use this information to time a lowball hostile bid when Company B's stock price drops.

Include a standstill when:

• You're a publicly traded company sharing confidential information with a potential acquirer
• The other party has the financial capacity to make an unsolicited acquisition attempt
• You're sharing information that could be used to time or structure a hostile bid
• You want to maintain control over the deal process and timeline

Standstill is typically unnecessary when:

• You're a private company (hostile takeovers are much harder)
• The NDA is for a vendor relationship, partnership, or other non-M&A purpose
• The other party is clearly smaller and couldn't acquire you
• You're actively running an auction process and want to encourage multiple bids

Practical tip: If you're uncertain whether the other party might attempt an acquisition, it's safer to include a standstill. You can always waive it later, but you can't add one retroactively.

Standstills appear in two very different contexts with different purposes:

NDA Standstill (Pre-Deal):

• Restricts the bidder while parties are just exploring a potential transaction
• Protects the target during the due diligence phase
• Typically 12-24 months duration
• Often includes "fall-away" provisions that release restrictions if certain events occur

Merger Agreement Standstill (Deal Signed):

• Restricts third parties from interfering with a signed deal ("no-shop" provisions)
• May require the target board to recommend the deal to shareholders
• Usually lasts until the deal closes or terminates
• Often allows "fiduciary out" for superior proposals

Key distinction: An NDA standstill controls the bidder you're talking to. A merger agreement standstill controls the target's ability to talk to other bidders.

A standstill prevents hostile takeovers by prohibiting the specific actions needed to execute one:

Share Accumulation Block: The bidder cannot buy target shares on the open market. This prevents them from building a stake that could:

• Fund a leveraged takeover
• Give them enough votes to influence the board
• Pressure other shareholders

Tender Offer Prohibition: The bidder cannot go directly to shareholders with an offer to buy their shares, bypassing the board entirely.

Proxy Contest Ban: The bidder cannot solicit shareholder votes to replace the board with directors who would approve a sale.

No Public Announcements: The bidder cannot publicly announce acquisition intentions, which could destabilize the target or force a response.

Important limitation: A standstill only binds the party who signs it. Other potential acquirers who haven't signed remain free to make hostile moves. That's why targets often have multiple standstills in place during an M&A process.

Short answer: A well-drafted standstill closes this loophole.

Strong standstills prohibit the bidder from:

• Acting "in concert" with third parties to take restricted actions
• Forming or joining a "group" under securities law (Section 13(d))
• Advising, assisting, or encouraging others to make acquisition attempts
• Providing financing to third parties for acquisition purposes

Real-world scenario: Bidder A is bound by a standstill but tells its private equity friends that Target B would be a great investment, knowing they might make a play. If the standstill prohibits "encouraging" third parties, this could be a violation.

Gray areas that cause disputes:

• What if a bidder's investment bank also represents another potential acquirer?
• What if the bidder is part of a consortium and other members aren't bound?
• Does sharing publicly available information constitute "assistance"?

Targets should ensure the standstill covers affiliates, representatives, and any coordinated actions with third parties.

Primary remedy - Injunctive relief: The target can go to court for an emergency injunction ordering the bidder to stop the prohibited activity. Most standstills include acknowledgment that:

• Breach would cause irreparable harm not compensable by money damages
• The target is entitled to specific performance and injunctive relief
• No bond or proof of damages is required

Why injunctions matter more than damages: If a hostile bid succeeds, monetary damages don't help - the target company no longer exists as an independent entity. The target needs to stop the bid before it succeeds.

Monetary damages: The target can also sue for damages, but these are hard to prove. What's the value of remaining independent? What would a "proper" sale price have been?

Practical reality: Most standstill violations are caught early and resolved through threats of litigation rather than actual trials. The mere existence of a clear standstill deters most violations.

Reputational consequences: A bidder known for violating standstills will find it harder to get access to future M&A opportunities. Investment banks and targets will be reluctant to deal with them.

Fall-away provisions automatically terminate standstill restrictions when specified events occur. They prevent the target from using the standstill to lock up a bidder while pursuing other options.

Common fall-away triggers:

• Third-party bid: If another party makes an acquisition proposal or commences a tender offer
• Strategic process: If the target publicly announces it's exploring strategic alternatives or engaging an investment bank
• Deal with third party: If the target signs a merger agreement with someone else
• Material change: If the target undergoes a significant change (major asset sale, recapitalization, etc.)

Why bidders insist on fall-aways:

• Ensures they can compete if the target opens discussions with others
• Prevents being "locked out" while a competitor acquires the target
• Creates fairness - if the target is shopping itself, all interested parties should be able to participate

Example scenario: Bidder A has a standstill with Target. Target then enters merger discussions with Bidder B. Without a fall-away, Bidder A would be prohibited from making a competing offer, even if they'd pay more.

Typical ranges:

• 6 months: Short; favors the bidder significantly
• 12 months: Common balanced position; standard for many M&A NDAs
• 18 months: More protective of target; common in friendly discussions
• 24 months: Target-favorable; may face resistance

Factors that affect duration:

• Deal complexity: Complex transactions need longer protection
• Target vulnerability: More vulnerable targets need longer standstills
• Information sensitivity: More sensitive disclosures warrant longer protection
• Market conditions: Volatile markets may justify longer periods

Negotiation dynamics: The standstill duration is often negotiated as a package with fall-away provisions. A target might accept a shorter duration in exchange for fewer fall-away triggers, or vice versa.

Practical tip: The standstill should be long enough that by the time it expires, any confidential information learned will be stale or the competitive landscape will have changed.

No. Fall-away provisions only terminate the standstill restrictions, not the entire NDA.

What continues after fall-away:

• Confidentiality obligations remain in full force
• Non-use restrictions on confidential information continue
• Return/destruction requirements still apply
• All other NDA provisions remain effective

What terminates:

• Prohibition on share purchases
• Prohibition on tender/exchange offers
• Prohibition on proxy solicitation
• Restrictions on public announcements about acquisitions

Important distinction: Even after a fall-away, the bidder cannot use confidential information improperly. They can make a hostile bid, but they must do so based on public information. Using confidential information from the NDA process in a hostile bid could still constitute a breach of the NDA's confidentiality provisions.

A "don't ask, don't waive" (DADW) provision prohibits the bidder from even requesting that the target waive or amend the standstill restrictions. It's the most aggressive form of standstill protection.

How it works:

• Standard standstill: "You can't make a hostile bid without our consent"
• DADW standstill: "You can't make a hostile bid AND you can't even ask us to let you make one"

Delaware law scrutiny: Delaware courts have examined DADW provisions because they can prevent target boards from fulfilling fiduciary duties to shareholders. Key cases:

• In re Complete Genomics (2012): Court noted DADW provisions warrant "enhanced scrutiny" but didn't invalidate them
• In re Ancestry.com (2015): Court approved DADW as a reasonable negotiating tool in context

Current status: DADW provisions are generally enforceable in Delaware, but:

• Target boards should understand what they're agreeing to
• Boards should consider whether DADW serves shareholder interests
• During an active sale process, DADW provisions may be waived to encourage competitive bidding

Practical advice: If you're a target, consider whether DADW is truly necessary. If you're a bidder, push to remove it or at least include robust fall-away triggers.

Target company boards have fiduciary duties to act in the best interests of shareholders. Standstill provisions can create tension with these duties in several ways:

Potential conflicts:

• Revlon duties: Once a company is "for sale," the board must seek the best price reasonably available. Aggressive standstills might prevent better offers.
• Information flow: DADW provisions prevent the board from even hearing about potentially superior offers.
• Unequal treatment: Different standstill terms with different bidders could favor one over another.

How boards manage this:

• Include fall-away provisions that release standstills during active sales processes
• Reserve the right to waive standstills when fiduciary duties require
• Consult with counsel before entering aggressive standstills
• Document the business justification for standstill terms

Practical reality: Most standstill disputes never reach court because boards proactively waive standstills when superior offers emerge. The legal risk is more theoretical than practical in most cases.

Key takeaway: Standstills are a negotiating tool, not a permanent barrier. Boards retain discretion to waive them when circumstances change.

Generally, no public disclosure is required during the discussion phase. The NDA itself, including standstill terms, is typically confidential.

When disclosure may be required:

• If a deal is signed: Material agreements are often disclosed in SEC filings
• Proxy statements: If the standstill affects shareholder voting rights, disclosure may be required
• Litigation: Standstill terms may become public through court filings
• 13D filings: If a bidder acquires 5%+ of shares, their agreements with the target may need disclosure

Strategic considerations:

• Confidentiality about standstill terms prevents competitors from knowing your deal structure
• However, sophisticated market participants often assume standstills exist in M&A discussions
• Unusual standstill terms might attract scrutiny if they later become public

Best practice: Assume that any standstill provision could eventually become public (through litigation, SEC filings, or leaks) and draft accordingly.

Yes, in most cases. Agreeing to a reasonable standstill is often necessary to get access to confidential information that makes your bid more informed and competitive.

Benefits of agreeing:

• Access to non-public financials, contracts, and strategic information
• Ability to conduct proper due diligence
• Demonstrates good faith and builds trust with target management
• May give you an advantage over bidders unwilling to sign

When to push back:

• Duration is excessive (longer than 18-24 months)
• No fall-away provisions despite reasonable requests
• Aggressive DADW provisions
• Restrictions extend to affiliates or portfolio companies unnecessarily

Negotiation approach: Accept reasonable standstill restrictions but insist on:

• Clear fall-away triggers
• Reasonable duration
• Right to request (even if not require) waivers
• Carve-outs for passive investments below a threshold

When to walk away: If the standstill terms are so aggressive that you'd be locked out of any competitive process, and the target won't negotiate, consider whether the deal is worth pursuing at all.

Yes, and this is heavily negotiated. Targets want broad coverage; bidders want narrow coverage.

Target's perspective:

• If only the signing entity is bound, a private equity firm could have a portfolio company make the hostile bid
• Investment banks could share information with other clients who then bid
• Affiliated funds could accumulate shares while the primary bidder is restricted

Bidder's perspective:

• Large organizations have many affiliates that operate independently
• It's impractical to police every portfolio company's investment decisions
• Information barriers exist between different parts of financial institutions

Common compromises:

• Limit coverage to "controlled" affiliates (majority ownership)
• Exclude affiliates with genuine information barriers
• Allow passive investments below a threshold (e.g., under 1%)
• Exclude affiliates that receive no confidential information

Private equity specific: PE firms often negotiate hard on this point because their portfolio companies may have legitimate, independent interest in the target's industry.

This is exactly why fall-away provisions exist. Without them, you may be stuck respecting the standstill even if the target is no longer seriously engaging.

If you have good fall-away provisions:

• Target engaging a banker = fall-away triggered
• Target talking to other bidders = fall-away triggered
• Target signing a deal with someone else = fall-away triggered

If you don't have fall-aways:

• You're generally stuck honoring the standstill until it expires
• You could argue breach of implied good faith, but this is difficult to prove
• In extreme cases, you might argue the standstill is unenforceable, but courts are reluctant to void signed agreements

Preventive measures:

• Always negotiate fall-away provisions before signing
• Include a provision allowing you to request waivers
• Consider a shorter standstill period if fall-aways aren't available
• Include a termination right if negotiations are suspended for an extended period

Lesson learned: The time to negotiate standstill protections is before you sign, not after the target goes quiet.