Agreement Still Stands

Ordinary shareholders tend not to like status quo agreements because they limit the potential returns of a buyout. 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. During the status quo period, a new agreement is negotiated, which generally changes the original loan repayment plan. This option is used as an alternative to bankruptcy or enforced execution if the borrower cannot repay the loan. The status quo agreement allows the lender to save some value from the loan. In the event of forced execution, the lender must receive nothing. By working with the borrower, the lender can improve its chances of repaying some of the outstanding debt. In banking, a status quo agreement between a lender and a borrower terminates the contractual repayment plan of a struggling borrower and imposes certain steps that the borrower must take. The agreement is particularly important as the bidder has had access to the confidential financial information of the entity concerned. 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. Status quo agreements are also used to suspend the usual limitation period to make a claim in court. [1] Another type of status quo agreement occurs when two or more parties agree not to deal with other parties for a specified 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. 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 is a contract that contains provisions governing how a bidder in a company can buy, sell or vote shares of the target company. A status quo agreement can effectively paralyze or stop the hostile takeover process if the parties are unable to negotiate a friendly agreement. For example, we agreed with a friend to meet with us in a week, and the day before the meeting, I want to make sure that the agreement has not changed. 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. A company that is pressured by an aggressive bidder or activist investor believes that a status quo agreement is useful in weakening the unsolicited approach.

The agreement gives the target entity greater control over the deal process by requiring the bidder or investor to buy or sell the company`s shares or launch proxy contests. A recent example of two companies that have signed such an agreement is Glencore plc, a Commodities trader based in Switzerland, and Bunge Ltd, an American agricultural commodities trader. In May 2017, Glencore took an informal step to buy Bunge. Shortly thereafter, the parties agreed to a status quo agreement that prevents Glencore from accumulating shares or making a formal offer for Bunge until a later date.

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