Standstill - not acting in concert

Following from the Corporate Blawg entry on "White Knights", Corporate Blawg has journeyed on a further hunt in the territory of financial regulation bashes.  Where two parties act together to take over a target party they are said to be "acting in concert", and this has implications in the Takeover Code.  Parties may enter certain types of standstill agreements without acting in concert.  Generally, "acting in concert" can be dangerous territory since parties acting in concert may sing as harmoniously as Nat King Cole and Ella Fitzgerald, or as discordantly as Elton John and Pete Doherty, and either way, the Takeover Panel will expect front row seats.
           Where a standstill agreement could affect a merger or acquisition, Note 5 of the Takeover Code assist with its the definition of “acting in concert”:

Standstill agreements between a company, or the directors of a company, and a person which restrict that person or the directors from either offering for, or accepting an offer for, the shares of the company or from increasing or reducing the number of shares in which he or they are interested, may be relevant for the purpose of this definition. In cases of doubt, the Panel should be consulted.

This means that where a company restricts a person from accepting or making an offer for shares, those parties will be acting in concert. In corporate law, standstill agreements are considered to be agreements which do prevent signed parties from buying or selling each other's shares. They may achieve this by: (a) two companies agreeing not to bid for each other, or (b) a company or its directors and a shareholder agreeing to restrict the shareholder's rights to sell its shares or otherwise reduce its shareholding.  This may have a variety of purposes, but primarily aims to protect a company's ownership and control.
            However, on 22nd August 2006, the Takeover Panel clarified their position on this Note 5.  The Takeover Panel stated that where a standstill agreement is entered into the Takeover Panel will not normally consider a concert party to exist between the parties, provided the agreement does not in any way restrict any of those parties from either:

1. accepting an offer for the company’s shares at any stage; or
2. agreeing to accept any offer for the company’s shares either before or after its announcement.

This exception is intended to apply to a standstill agreement between the company’s financial or nominated adviser and /or its sponsor and /or underwriter, rather than the company or directors themselves.  A classic example would be a standstill agreement entered into at the time of a share offering, with a view to ensuring an orderly aftermarket in the company’s shares (for related issues see "Green shoes").  The Panel have clearly been inundated with requests for consultation on this situation, and wish to reduce their rather large workload.
          Digging their heels in the sand, the Takeover Panel retain that where two parties intend to enter into standstill agreements which are not between the Company and its advisors, for example between two shareholders, or in any other cases of doubt, the Takeover Panel should be consulted in advance.      

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