In two recent rulings, the Delaware Court of Chancery has provided important guidance on how so-called “don’t ask, don’t waive” standstill provisions – which can be utilized to encourage bidders to provide their best-offer bids during an auction – will be viewed in future litigation in Delaware. While the use of such provisions is necessarily guided by the fiduciary obligation of a target company board to obtain the best price reasonably available in an auction, the Chancery Court has recognized that “don’t ask, don’t waive” provisions can be an appropriate and effective tool in maximizing shareholder value in a board-run auction process.
“Don’t ask, don’t waive” provisions have become increasingly common in M&A standstill agreements as a way of incentivizing competing bidders to make their most attractive bids during an auction. By their terms, such provisions prohibit bidders from either publicly or privately requesting that a target company waive the terms of a standstill agreement entered between the bidder and the target. Target companies in an auction increasingly use these provisions to restrict bidders from low-balling initial offers in the hopes of later negotiating a deal or going hostile, or from sitting out an auction and using the participating bidders as stalking-horses. These provisions may thus maximize value for stockholders by forcing bidders to present their best price during an auction and by according finality to the auction process.
