Australia: Standstills May Not Always Keep The Wolves From The Door

Last Updated: 19 March 2009
Article by Russell Philip

Prospective acquirers often want the opportunity to undertake due diligence on the target company to firm up on the value proposition before committing to make a takeover offer or merger proposal for the entire company.

However, directors of public companies need to think carefully before allowing prospective acquirers to have access to confidential information about its business. Such information is often valuable proprietary information, and should only be used for the advantage of the company and its shareholders. In making such information available, there is a risk that a prospective acquirer may seek to use that information to seek to acquire the target company on the cheap.

In such instances, one option for the board of a target company is to insist that the prospective acquirer enters into a 'standstill agreement' as a mechanism to facilitate the disclosure of additional information to assist both parties to explore the potential transaction further, without the target company being under the constant threat of the prospective acquirer turning hostile.

The Takeovers Panel in the International All Sports Ltd case has recently indicated a willingness to review standstill agreements to ensure that the duration of the standstill is not unreasonable in the context of the information made available to the prospective acquirer.

What is a standstill?

A 'standstill' is a contractual commitment by the prospective acquirer not to buy shares in the target company for a specified period, except with the consent of the target company's board. In effect, the agreement states that if the prospective acquirer, having had the opportunity to review the target's confidential information, decides not to proceed with an offer on terms which are acceptable to the target company's board, then the prospective acquirer is effectively locked out from acquiring any further shares in the target company for a specified period of time.

There are many examples of prospective acquirers that have signed up to a standstill to access due diligence information, but then found that they have been unable to agree acceptable acquisition terms with the target's board. One way of tackling this issue is for the prospective acquirer to turn to the target's shareholders to put pressure on the target board to waive the standstill requirement and allow a takeover offer to be made. In practice, such tactics have rarely worked, and have inevitably led to the acquirer raising its bid price in order to secure a recommendation from the target board and a waiver of the standstill, to allow it to proceed with its bid (such as Cape plc's bid for PCH in 2007). Or withdrawing their proposal entirely so that target shareholders are not afforded the opportunity to consider the potential offer.

Until the recent Takeovers Panel (Panel) decision in International All Sports, the interpretation of standstills has been largely a contractual matter. Rarely have the Courts intervened to read down the effect of a standstill. While directors of target companies need to be mindful of their fiduciary duties to act in the best interests of the company and for proper purposes in entering into such arrangements, breach of directors duties in these circumstances are often difficult to prove (particularly where there are mixed purposes in insisting on the standstill).

Standstills themselves do not sit comfortably with the notion in the Panel's 'Frustrating Action' Guidance Note that decisions about control and ownership of a company are properly made by its shareholders. In effect, standstill provisions can provide the target board with the ability to control whether target shareholders have the opportunity to consider an offer for their shares. However, the difficulty with standstills (similar to other lock-up devices such as exclusivity and break fees) is that they are often used as a mechanism to facilitate the investigation of a potential transaction, which may never have eventuated if the target board did not grant access to prospective acquirer to conduct due diligence.

While the Panel has previously raised questions about whether its Guidance Note 7 "Lock up Devices" should be expanded to deal specifically with standstill agreements, until now there has been little guidance as to when such arrangements may infringe on the principle that acquisitions of control takes place in an efficient, competitive and informed market.

International All Sports Limited

In April 2008, Centrebet gave confidentiality and standstill undertakings in favour of International All Sports Limited (IAS) before it was provided with information about IAS for the purposes of a possible acquisition of its assets. The standstill was expressed to prevent Centrebet from acquiring shares in IAS for a period ending 12 months after the date Centrebet withdrew from the asset sale process. Centrebet subsequently withdrew from the asset sale process, and IAS subsequently announced the termination of the asset sale process in November 2008. On 2 February 2009 Centrebet announced a cash takeover offer for all the shares in IAS, conditional on being released from the standstill either by IAS or the Panel.

Centrebet submitted that the standstill provisions constituted unacceptable circumstances on the basis that the provisions were (among other things):

  • an anti-competitive lock-up arrangement without proper legal or commercial justification; and
  • a frustrating action tantamount to a poison pill.

Centrebet submitted that the standstill, and IAS's refusal to release Centrebet from it, had the effect of excluding Centrebet from the market for IAS shares. This meant that IAS shareholders were being denied the opportunity of participating in the proposed bid without any proper commercial justification. Centrebet submitted that this was contrary to the principles set out in sections 602(a) and (c) of the Corporations Act, namely:

  • inhibiting an efficient, competitive and informed market for IAS shares and
  • denying shareholders a reasonable and equal opportunity.

Centrebet also submitted that non-disclosure of the standstill arrangements indicated an intention by the IAS board to render IAS 'takeover proof' unless the IAS board first approved of the bid.

The Panel considered that standstill agreements are a useful means to enable price-sensitive information to be provided to a potential acquirer of a company's shares. Among other things, a standstill helps facilitate sale processes, protect companies and their officers against insider trading liability and ultimately advance shareholders' interests. Standstills also protect against the 'forced' disclosure of information under s636 if a bid is made.

In the Panel's view, there is a public interest in enforcing confidentiality agreements and standstills as they promote the exchange of information and the maximisation of value to shareholders. Failure to enforce such agreements could disrupt the process of negotiating and consummating business transactions. Subject to their duties, the Panel believed that target directors are entitled to release the target's information at their discretion and with the conditions they desire. In this case, one such condition was the standstill and the recipient of the information agreed to that condition.

However, the period of a standstill should be negotiated with regard to the nature of the information made available under it, so as to be commercially justifiable. It is reasonable for parties to agree a fixed end date for a standstill to give commercial certainty to their contractual arrangements, but the duration of the standstill needs to be commensurate with the materiality of the information to be provided.

In this case, IAS provided Centrebet information relating to IAS management profit and loss, and income, forecasts for periods up to the financial year ending 30 June 2010. The forecasted periods extended well beyond the term of the standstill. Having regard to the information to be (and actually) provided to Centrebet, a 12 month standstill appeared in the Panel's view to be commercially justifiable. In forming this view, the Panel considered it relevant that a standstill for 6 to 12 months from a relevant time (for example, withdrawal from the sale process) is consistent with market practice.

The Panel went on to consider whether it may give rise to unacceptable circumstances for IAS to continue to enforce the standstill if all the information provided to Centrebet has ceased to be price-sensitive. However, the Panel found that not all of the information made available to Centrebet had ceased to be price-sensitive, and so declined to make such a declaration.
Centrebet has since applied for a review of the Panel's decision.


The IAS decision signals a potential willingness of the Panel to review standstill arrangements to determine whether they have an anti-competitive effect.

While a standstill may protect the target company from a prospective acquirer taking advantage of non-public materially price sensitive information, it can also have the effect of reducing the pool of potential acquirers unless the period of the standstill is reasonable, it may give rise to unacceptable circumstances. Care needs to be taken in negotiating standstill arrangements to ensure that the effect of the standstill is not disproportionate to the information which the standstill is seeking to protect.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions