What is the purpose of a standstill agreement?

A standstill agreement is a strategic legal document commonly used in mergers and acquisitions to prevent an acquirer from increasing their stake in a target company for a specific period. This allows the target company time to evaluate potential alternatives, negotiate more favorable terms, or restructure its strategy without the added pressure of the acquirer continually amassing shares and potentially taking control.

The purpose of this type of agreement is to stabilize the target's current ownership structure while ongoing negotiations or considerations are taking place. It acts as a buffer, allowing the company to maintain control over its narrative and ensure the best possible outcome in any potential sale or merger.

In contrast, other options do not accurately reflect the primary function of a standstill agreement. For example, preventing management from selling any shares is more about internal corporate governance rather than the intended use of a standstill. Likewise, delaying regulatory review pertains to compliance with laws governing mergers and acquisitions, which is not what a standstill addresses. Lastly, ensuring competition in the bidding process would involve different tactics, such as auction mechanisms or multiple bidders, rather than restricting ownership through a standstill agreement. Thus, the stance that a standstill agreement restricts an acquirer from purchasing more shares for a certain time encapsulates its core purpose