Negotiating Standstill Provisions

💡 Negotiation Overview

Standstill provisions are among the most heavily negotiated terms in M&A confidentiality agreements. The outcome of these negotiations can significantly impact deal dynamics, and the appropriate terms depend heavily on context: Is this a friendly or potentially hostile situation? Is the target running an auction or having exclusive discussions? What is the relative bargaining power of the parties?

This guide covers the key negotiation points from both the target company and bidder perspectives.

⚖ Opposing Perspectives

🎯 Target Company Goals

Maximize standstill duration (18-24 months)
Limit or eliminate fall-away provisions
Include "don't ask, don't waive" restrictions
Cover all forms of acquisition activity
Extend coverage to affiliates and associates
Prohibit share accumulation entirely
Prevent public announcements or pressure

💼 Bidder Goals

Minimize standstill duration (6-12 months)
Include broad fall-away provisions
Eliminate "don't ask, don't waive" restrictions
Retain ability to make private proposals
Preserve ability to acquire modest stake
Allow response to third-party bids
Limit restrictions to public hostile acts

📅 Time Period Negotiations

The duration of the standstill period is often the first negotiating point. Standard ranges and their implications:

Duration	Typical Context	Considerations
6 months	Bidder-friendly; competitive auction	Minimal protection for target; bidder can act quickly after expiration
12 months	Standard in friendly discussions	Balanced approach; typically acceptable to both parties
18 months	Target-friendly; strategic buyer	Strong protection; may deter some bidders
24 months	Maximum target protection	May be excessive; could raise enforceability concerns

Negotiation Tip: If you cannot agree on duration, consider tying the term to specific milestones (e.g., 6 months after the target notifies bidder that negotiations are terminated, rather than a fixed date).

🔓 Fall-Away Provisions

Fall-away provisions automatically release the bidder from standstill restrictions if specified events occur. These are critically important for bidders who want to remain competitive if the situation changes.

Common Fall-Away Triggers

Third-Party Agreement: Target enters into a definitive agreement with another buyer
Third-Party Tender Offer: Another party commences a tender offer for a specified percentage (often 25-50%)
Public Process: Target announces it is exploring strategic alternatives
Material Change: Target undergoes a material adverse change in business or financial condition
Expiration of Exclusivity: Any exclusivity period with another party expires without a deal

Negotiation Strategies

Target Positions

Limit fall-away to only definitive third-party agreements
Require high thresholds for tender offer triggers (50%+)
Exclude "exploring strategic alternatives" as a trigger
Add cure periods before fall-away becomes effective
Require that any third-party offer be for all shares

Bidder Positions

Include broad fall-away triggers
Add trigger for "discussions" with third parties, not just agreements
Low thresholds for tender offer triggers (15-25%)
Immediate effectiveness upon trigger
Include "material adverse change" as a trigger

Key Consideration: From the target's perspective, fall-away provisions can effectively convert a friendly process into a competitive auction the moment any third party expresses interest. Consider whether this dynamic aligns with your transaction strategy.

⚠ "Don't Ask, Don't Waive" Provisions

A "don't ask, don't waive" (DADW) provision prohibits the bidder from requesting that the target waive or amend the standstill. These provisions have been the subject of significant Delaware court scrutiny.

The Delaware Law Issue

Delaware courts have examined whether DADW provisions can improperly limit a target board's ability to fulfill its fiduciary duties. Key cases include:

In re Complete Genomics (2012): Court suggested that boards should be able to waive standstills when doing so is in shareholders' best interests
In re Ancestry.com (2012): Similar concerns raised about provisions that prevented bidders from making private proposals
Martin Marietta Materials v. Vulcan Materials (2012): Court examined confidentiality agreements in hostile context

Current Best Practice: Many practitioners now use a "soft" DADW that prohibits public requests for waivers but permits confidential, private requests to the board. This approach attempts to balance target protection with board fiduciary flexibility.

Alternative Approaches

Approach	Description	Risk Level
Full DADW	Prohibits any request for waiver, public or private	Highest fiduciary risk for target board
Public-Only DADW	Prohibits public requests; permits private requests	Moderate; most commonly used
No DADW	Bidder may request waivers at any time	Lowest risk for target board; least protection
Response Required	No DADW, but target must respond within specified period	Bidder-favorable variation

📈 Share Accumulation Provisions

Most standstills prohibit acquiring shares, but the scope varies significantly:

Prohibition Scope

Total Prohibition: No share acquisitions of any kind
De Minimis Exception: Permits acquisitions up to a small threshold (often 1-5%)
Open Market Exception: Permits ordinary course purchases through open market transactions
Derivative Coverage: Whether options, swaps, and other derivatives are covered

Negotiation Points

Existing Holdings: If bidder already owns shares, clarify that standstill applies only to new acquisitions
Passive Investments: Distinguish between passive and control-seeking share purchases
Index Funds: If bidder manages index funds, carve out for passive index holdings
Defensive Purchases: Whether bidder can acquire shares in response to third-party tender offer

💡 Tactical Negotiation Tips

1
Consider Your BATNA: If you are the target in a competitive auction, you have leverage to demand stronger standstills. If you are approaching a single potential acquirer, you may need to be more flexible.
2
Link to Information Access: Bidders can argue that the standstill should be proportionate to the information received. More sensitive information may justify stronger restrictions.
3
Stage the Standstill: Consider a standstill that weakens over time or after certain milestones, rather than an all-or-nothing approach.
4
Address the Fiduciary Issue: If including DADW, consider adding language acknowledging that the board may waive if required by fiduciary duties, to address Delaware concerns.
5
Define Key Terms: Ensure "Representatives," "affiliates," and "group" are clearly defined. Ambiguity favors neither party and invites disputes.
6
Consider Mutual Provisions: In some contexts, both parties may want standstill protection (e.g., mutual merger discussions). Mutual provisions may be easier to negotiate.