Standstill Agreement

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DEFINITION of 'Standstill Agreement'

1. A contract that stalls or stops the process of a hostile takeover. The target firm either offers to repurchase the shares held by the hostile bidder, usually at a large premium, or asks the bidder to limit its holdings. This act will stop the current attack and give the company time to take preventative measures against future takeovers.

2. An agreement between a lender and borrower in which the lender stops demanding the repayment of the loan. A new deal is negotiated, usually altering the loan's original repayment schedule. This is used as an alternative to bankruptcy or foreclosure when the borrower can't repay the loan.

BREAKING DOWN 'Standstill Agreement'

1. When a target firm enters a standstill, its shareholders are usually displeased. Because the takeover is being blocked, any possible value created from the merger will be lost. Usually, share prices rise on news of a takeover. If a standstill agreement is reached, the stock value should fall to its previous level.

2. The standstill agreement allows the lender to salvage some value from the loan. In a foreclosure, the lender may receive nothing. By working with the borrower, the lender has a chance of being repaid.

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