standstill agreement

Case Study

In February 1996, the Chrysler Corporation reached a standstill agreement with dissident stockholder Kirk Kerkorian. Over several years, Kerkorian had accumulated nearly 13.6% of Chrysler's common stock in an unsuccessful takeover attempt. At the time of the agreement, the investor was threatening Chrysler management with a proxy fight. As part of the standstill agreement, Kerkorian said he would not accumulate additional Chrysler shares, not attempt a hostile takeover, and not launch a proxy fight for a period of five years. In turn, Chrysler management agreed to give a board seat to a Kerkorian ally. The firm also agreed to double the size of its planned 1996 share-repurchase program to $2 billion and to repurchase an additional $1 billion of Chrysler shares the following year. The standstill agreement rewarded Kerkorian with a boost in the value of his Chrysler shares, and at the same time it permitted Chrysler's management to eliminate a problem that was consuming substantial amounts of the firm's time and resources.