What Does a Standstill Agreement Mean for Your Investment?

A standstill agreement will sometimes take place when a hostile takeover is in process. Here are the basics of a standstill agreement and what it means for your investment.

Standstill Agreement

A standstill agreement is a contract that is agreed upon between a corporation and an entity trying to take it over. The standstill agreement puts a halt to the hostile takeover. In most cases, the company that is being taken over will offer to repurchase the shares that are owned by the hostile takeover bidder. The company will typically have to pay a premium in order to get these shares back. Other agreements not involving stock purchases might also take place between the two parties.

Investment Impact

As an investor, you will most likely not appreciate that a standstill agreement is taking place. When a takeover is rumored, the prices of the company's stock usually move upwards. Most investors get excited about the thought of a merger or takeover. Whenever the merger does not occur, this usually results in the stock price's going back to what it was before. Therefore, any gains in stock price that you thought you might be getting will usually be negated by the standstill agreement.

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