A standstill agreement is a legal agreement between two or more parties that temporarily suspends or “stands still” any action that could potentially harm or disrupt a business relationship. In the context of the Australian Securities Exchange (ASX), a standstill agreement can be used to delay a takeover bid or prevent hostile takeover attempts by temporarily prohibiting the acquisition of additional shares in a company.

The ASX is a highly regulated market where companies must disclose all information that could potentially affect their share price to ensure transparency and protect the interests of investors. However, in the case of takeovers or mergers, this can sometimes give takeover bidders an unfair advantage over the target company by allowing them to collect shares before the target company is aware of their intentions.

To address this issue, the ASX has implemented rules surrounding standstill agreements as a means of providing a level playing field for companies involved in takeover transactions. These agreements typically require the bidder to abstain from acquiring more shares in the target company for a specified period, allowing the target company an opportunity to assess the bidder`s intentions and take any necessary action.

Standstill agreements can also include other provisions, such as restrictions on the bidder`s ability to engage in activist tactics, such as proxy fights or calling special meetings of shareholders, and requirements for the bidder to maintain a minimum level of share ownership to ensure ongoing support for the target company.

However, standstill agreements are not without their limitations. They are not a foolproof solution, and bidders can sometimes still find ways to circumvent them and acquire shares in the target company. Additionally, standstill agreements can limit the ability of shareholders to sell their shares at a premium price, something that could be damaging in the event of a successful takeover bid.

It is therefore essential for companies considering standstill agreements to carefully consider the risks and benefits of such an agreement and seek legal advice to ensure they are fully protected. While ASX rules provide a framework for standstill agreements, each case may present unique challenges that require careful attention.

In summary, a standstill agreement is a useful tool for companies looking to protect themselves from hostile takeover attempts or delays in takeover transactions. However, it is important to carefully consider the risks and benefits of such an agreement and work closely with legal advisors to ensure compliance with ASX regulations and protect the interests of all parties involved.