Standstill Agreement

Quick Facts

Duration: Typically 1-3 years

Parties: Target company and activist investor (or potential acquirer)

Purpose: Pause hostilities in exchange for concessions

Common outcome: Board seat(s) for activist, limits on further action

A standstill agreement is a contractual arrangement where an activist investor or potential acquirer agrees to halt certain hostile activities—such as accumulating more shares, launching proxy fights, or making public demands—for a specified period. In exchange, the target company typically offers concessions like board representation or strategic changes.

In Plain English

A standstill agreement is a corporate ceasefire. An activist investor has been buying up shares and rattling sabers. Instead of going to war (a costly proxy fight), both sides negotiate a truce. The activist agrees to stop buying shares and making noise; the company agrees to put the activist's nominee on the board or make some changes they wanted. Everyone saves money, and the fighting stops—at least for now.

How It Works

Activist builds position and signals intent (often via 13D filing)
Company engages — board and management meet with activist
Negotiations occur — both sides discuss demands and concerns
Agreement reached — activist gets some wins, company gets peace
Standstill period begins — activist bound by restrictions
Period expires — activist free to resume campaign (or not)

Typical Terms

What the Activist Agrees To

Ownership cap: Won't acquire shares beyond current level (or specified ceiling)
Voting restrictions: Will vote with management on contested matters
No proxy solicitation: Won't run director candidates outside the agreement
No public criticism: Won't make disparaging statements about company
Confidentiality: Won't disclose non-public information received
No "wolf pack": Won't coordinate with other activists

What the Company Provides

Board seats: 1-2 director positions for activist nominees
Committee representation: Seats on key committees (audit, compensation)
Strategic review: Commitment to evaluate specific initiatives
Expense reimbursement: Payment of activist's campaign costs
Information rights: Regular updates on company performance

Famous Examples

Disney and Third Point (2022)

Hedge fund Third Point invested $1 billion in Disney and pushed for ESPN to be spun off. Rather than endure a proxy fight, Disney and Third Point reached a standstill agreement in September 2022. In exchange for Third Point signing a standstill, Disney appointed Carolyn Everson—a Third Point-supported candidate—to the board.

GameStop and Hestia/Permit (2019)

When activist investors Hestia Capital and Permit Capital built positions in GameStop and pushed for governance changes, GameStop negotiated a standstill agreement. The activists received the right to nominate two independent directors in exchange for agreeing to standstill provisions.

Airgas vs. Air Products

When Air Products made a $5.9 billion hostile bid for competitor Airgas, Airgas used a standstill agreement as part of its defense strategy to prevent Air Products from taking the bid directly to shareholders. The standstill bought Airgas time to pursue legal challenges, which it eventually won.

Duration and Termination

Typical Standstill Periods

Situation	Common Duration
Activist settlement	12-24 months
M&A confidentiality	12-18 months
White knight arrangement	6-12 months

Early Termination Triggers

Standstill agreements often include provisions allowing early termination if:

The company enters a merger agreement with another party
A third party launches a hostile bid
The activist's board nominee is not re-nominated
Material breach by either party

Strategic Considerations

For Companies

Advantages:

Avoids costly proxy fight (typically $10-50M)
Provides certainty and stability
Limits activist's ability to escalate
Can be face-saving for both sides

Disadvantages:

May have to make unwanted concessions
Activist gains board access and information
Only delays potential future conflict
Shareholders may question settlement terms

For Activists

Advantages:

Achieves key objectives without full campaign
Saves significant legal and PR expenses
Board seat provides inside information and influence
Builds relationship for future engagement

Disadvantages:

Limited ability to push for more changes
Locked out of additional accumulation
Must work within system rather than outside it
Bound by confidentiality restrictions

Standstills in M&A Context

Standstill agreements also appear in M&A when a potential acquirer receives confidential information during due diligence. The acquirer agrees not to:

Make unsolicited acquisition proposals
Purchase additional shares
Solicit proxies
Disclose confidential information

This protects the target while allowing negotiations to proceed.

The "Don't Ask, Don't Waive" Controversy

Some standstill agreements historically included "don't ask, don't waive" (DADW) provisions that prevented potential acquirers from even requesting the target to waive the standstill—effectively blocking competing bids. Delaware courts and proxy advisors have pushed back on DADW provisions as potentially harmful to shareholders seeking the best price.

Practical Takeaways

For founders: Standstill agreements can be your best outcome when facing an activist. You avoid a costly, distracting proxy fight and may only need to give up one board seat. Negotiate hard on the duration (longer is better) and the scope of restrictions (broader is better).

For investors: When a company announces a standstill with an activist, read the terms carefully. A well-negotiated standstill can bring positive change without warfare. But if the company gave away too much—or too little—future conflict may be inevitable.

Proxy Fight — What standstills are designed to avoid
Schedule 13D — The filing that often precedes standstill negotiations
Poison Pill — Another defense that may be part of negotiations
White Knight — May trigger standstill termination provisions