Standstill agreements are ubiquitous in public company M&A deals. In fact, the execution of a standstill has been described as the “cost of entry” into negotiations and serves to indicate a bidder’s seriousness. Despite their ubiquity, there is surprisingly little Delaware case law on standstills and even less academic literature on the subject. In my paper, Promises Made to be Broken? Standstill Agreements in Change of Control Transactions, forthcoming in the Delaware Journal of Corporate Law, I attempt to begin to fill this gap in academic literature by examining and providing a blueprint for the resolution of various issues raised by the execution and enforcement of standstills in the context of sales resulting in a change of corporate control.

My paper concentrates on three issues the Delaware courts have yet to tackle: a target board’s ability to consider a third-party superior offer made in contravention of a standstill; a board’s promise not to waive a standstill; and a board’s ability to grant a “winning” bidder the right to enforce a previously executed standstill against a “losing” bidder. Each of these issues raises a conflict between two fundamental principles of Delaware M&A law: 1) a board’s Revlon duty to maximize stockholder value in a sale of corporate control; and 2) the sanctioning of certain deal protection provisions as permitted by the Delaware Supreme Court’s decision in Unocal Corp. v. Mesa Petroleum Co. and its progeny. As commonly argued, the availability of deal protection devices, including standstills and other promises made in relation to standstills, may assist a target board in extracting more value from bidders, thereby facilitating satisfaction of a board’s Revlon duties. Thus, at the pre-signing stage there may be good reason for a target board to agree to a standstill, and the provision may be permissible under Unocal but, pre-closing, the provision may inhibit the fulfillment of a board’s Revlon duties. Specifically, standstills may prevent a board from considering a third-party offer or deter a third party bound by a standstill from making an overbid in the first place.

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