In public company M&A deals, the target company may enter into a standstill agreement with the potential acquiror. The standstill agreement is intended to protect the target company from a hostile takeover attempt.

The target company typically will want a standstill agreement executed prior to releasing confidential information about its business and operations to the potential acquiror. This provides the target company with comfort that the confidential information will not be used against it. Standstills may either be structured as standalone agreements or be drafted as contractual provisions within another merger transaction agreement.

During the standstill period, the prospective acquiror agrees not to acquire securities of the target company. In some cases, the potential acquiror is permitted to acquire securities of the target company below a specified percentage threshold. Pursuant to the terms of the standstill agreement, the potential acquiror also agrees not to take actions in an attempt to gain control or influence over the board or management.

Standstill agreements contain a number of key terms that are negotiated among the parties. The duration of the standstill period can be a heavily negotiated point. Typically, standstills are effective for 18-24 months. However, standstills as short as 6 months or as long as 5 years may be negotiated in some circumstances. The target company will often push for a longer standstill period. Factors such as the potential acquiror’s past history of making hostile bids and the expected time to complete the merger may influence the duration of the standstill. In many cases, the duration of the confidentiality period is longer than the duration of the standstill period.

The standstill restrictions may terminate prior to the end of the agreed standstill period under certain circumstances. For example, a standstill period could terminate early if another bidder launches a tender offer to acquire more than 50% of the target company’s securities.

Many standstill agreements contain a “Don’t Ask, Don’t Waive” clause, which prohibits the potential acquiror from requesting a waiver of the standstill restrictions. This clause becomes relevant in situations where a competing offer is presented by another bidder.

Another key point of negotiation is the applicability of the standstill provisions to representatives and affiliates of the potential acquiror. The target company will often try to have the standstill apply to a broad range of third parties that have acted on the potential acquiror’s behalf. Representatives, affiliates, and advisors of the potential acquiror that received confidential information about the target company are generally subject to the standstill restrictions.

The target company’s board is subject to a fiduciary duty to act in the best interests of the company’s shareholders when evaluating a merger transaction. In the merger context, the target company board is expected to fulfill its Revlon duties. Named after a famous Delaware court case, the Revlon doctrine obligates the target company board to achieve the highest price reasonably attainable in the sale process.

Standstills in public M&A transactions are generally enforceable. Many lawsuits challenging the validity of standstill restrictions have been struck down by courts in Delaware, the jurisdiction of incorporation for the majority of U.S. companies.