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Attorneys involved in mergers and acquisitions must understand the full risks, benefits, and implications of confidentiality and standstill agreements forged when deals are still being negotiated, say Analysis Group Vice President Gaurav Jetley and Jenner & Block LLP attorneys Terri Mascherin and Kyle Palazzolo in their coauthored article “Shut Up and Stand Still: Understanding the Role of Standstill Provisions in M&A Disputes” (Executive Counsel, June/July 2012).

The authors discuss the nature and enforceability of nondisclosure agreements, which are designed to facilitate the exchange of nonpublic information between a target company and potential acquirers; and of standstill clauses, which aim to protect the target company from a hostile takeover attempt by a suitor who has access to the target’s confidential information.

Noncompliance with the terms of these agreements, however, can have significant litigation consequences. To illustrate, the authors discuss in-depth the court’s decision in Ventas, Inc. v. HCP, Inc., a dispute between two suitors for SZR, a Canadian real estate investment trust, in which HCP was found to have engaged in “significantly wrongful conduct” because of public statements it made about its bidding activities.

“HCP ran afoul of the law both because Ventas and SZR had negotiated careful deal protections and because HCP sought to take its case to the public markets with inaccurate information,” the authors write. “Inaccurate disclosures can distort market prices and, hence, are not sanctioned by the courts.” Ultimately, HCP paid more than $225 million to Ventas.

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Read more about our work in Ventas, Inc. v. HCP, Inc.