Standstill Agreement Merger

A status quo agreement between a lender and a borrower may also exist when the lender stops requiring a planned interest or capital payment for a loan to give the borrower time to restructure its debts. At the international level, it may be an agreement between countries to maintain the current situation, in which a responsibility owed to one to the other is suspended for a specified period of time. A status quo agreement provides different levels of protection and stability to a target company in the event of hostile adoption and promotes an orderly sales process. It refers to an agreement between the parties not to take further action. Ordinary shareholders tend not to like status quo agreements because they limit the potential returns of a buyout. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan. In the event of forced execution, the lender must receive nothing. By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt.

Another type of status quo agreement occurs when two or more parties agree not to deal with other parties on a particular issue for a period of time. For example, in merger or acquisition negotiations, the intended buyer and potential purchaser may agree not to seek acquisitions with other parties. The agreement strengthens the incentives of the parties to invest in negotiation and diligence, while preserving their own potential agreement. As a temptation to do nothing, the target company can promise to repurchase the equity holdings of the potential acquirer on the target share with a premium. (This is also called greenmail and is no longer generally allowed). The objective may also allow the bidder (limited) access to the financial information of the target entity as part of a confidentiality agreement. In the following example of status quo agreements, the target company proposes to amend the Shareholder Rights Plan (Poison Pill) if the bidder enters into the agreement. This indicates an agreement that has never been truly hostile, but could be concluded if the negotiations were discussed in depth. A status quo agreement can be used as a form of defence of a hostile takeover when a target company receives a commitment from a hostile bidder to limit the amount of shares it buys or holds in the target company. By committing to the promise of the potential acquirer, the target company saves more time to set up new takeover defenses. In many cases, the target company promises in return to repurchase the equity holdings of the potential purchaser for the purpose of an increase.

It is important to note that these agreements are unique and can be specifically tailored to each situation. Traders need to make sure they understand the relevance of each point by point. When a status quo agreement is negotiated, it tends to have a negative effect on the spread of merger arbitration. By reducing the likelihood of an agreement being reached (DCP), the potential returns of a buyback will increase as the merger develops. In banking, a status quo agreement between a lender and a borrower terminates the contractual repayment plan of a struggling borrower and imposes certain steps that the borrower must take. A status quo agreement between a bank and a borrower operates in lines similar to those shown above. It suspends the contractual repayment plan of a stressed borrower and imposes certain conditions on the borrower.

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