A status quo agreement tends to favour the existing management team over the rights of shareholders who would otherwise benefit from a takeover offer that would increase the value of their shares. A status quo agreement is a form of anti-support measure. 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 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. A status quo agreement between a lender and a borrower may also exist when the lender stops requiring a planned interest or capital payment for a loan to give the borrower time to restructure its debts. 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. In other areas of activity, a status quo agreement can be virtually any agreement between the parties, in which both parties agree to discontinue the case for a specified period of time. This may include an agreement to defer payments to help a company in difficult market conditions, agreements to stop the production of a product, agreements between governments or many other types of agreements. The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. 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 may be included in the language associated with a confidentiality agreement that a potential bidder must sign for a business before they can view a company`s due diligence documents. The inclusion of this clause in the agreement prevents the bidder from carrying out hostile acquisition activities as a result of a friendly sales contract. A status quo agreement is an agreement between a potential acquirer and a target entity that limits the purchaser`s ability to increase its interest in the target company. The agreement can be used to terminate a hostile acquisition attempt, usually at the price of a cash payment to the potential purchaser, which involves a surtax buyback of the shares already held by the purchaser. Or the target company may grant a seat on the purchaser`s board of directors in exchange for the absence of an increase in its holdings. 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. The agreement strengthens the incentives of the parties to invest in negotiation and diligence, while preserving their own potential agreement.