As a hostile anti-opaque defense mechanism, the target company can obtain a promise from an unfriendly bidder to limit the amount of shares the bidder can buy or hold in the target company. This gives the target company time to implement other acquisition defence strategies. In return, the target entity may repurchase the equity holdings of the potential purchaser on the target share with a premium. The target company may offer another incentive, such as. B a seat on the board of directors. A status quo agreement can also be an agreement between the parties not to deal with other parties for a specified period of time during negotiations. It can also be used as an alternative to bankruptcy or enforced execution. A company that is pressured by an aggressive bidder or activist investor believes that a status quo agreement is useful in weakening the unsolicited approach. The agreement gives the target entity greater control over the deal process by requiring the bidder or investor to buy or sell the company`s shares or launch proxy contests. Status quo agreements are also used to suspend the usual limitation period to make a claim in court. [1] 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. 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 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. A status quo agreement is an agreement that preserves the status quo. It is an agreement between the objective and the bidder that prevents the bidder from making an offer to purchase the target without first obtaining its approval. It can be added as a provision in the confidentiality agreement and will be executed before obtaining due diligence material.
A status quo agreement aims to prevent hostile bids and provides a possible remedy in case the bidder uses confidential information to make a hostile offer if the parties fail to reach a mutual agreement on the terms of sale. 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. Ordinary shareholders tend not to like status quo agreements because they limit the potential returns of a buyout. The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. The concept of a status quo agreement refers to different forms of agreements that companies can enter into to delay actions that could be taken otherwise. 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.