Shut Up and Stand Still

Parties contemplating an M&A transaction typically enter into a confidentiality agreement (CA) to facilitate the exchange of non-public information. The parties may include a standstill clause, which aims to protect the target from a hostile takeover attempt by an acquirer with access to the target’s confidential information.

The risk of non-compliance can be severe, as Ventas v. HCP illustrates. SZR, a Canadian company, conducted a structured sales process to identify a buyer. Ventas, HCP, and other potential acquirers executed CAs with SZR. HCP’s included a standstill and a confidentiality undertaking. In January 2007, SZR and Ventas announced an agreement to acquire SZR for C$15 in cash per unit, and to assume SZR’s debt. Soon after, HCP publicly disclosed a purported offer to acquire SZR at C$18 per unit. SZR’s stock price shot up from under $C15 to over $C18.

Litigation resulted in HCP withdrawing its “offer.” However, Ventas was forced to increase its offer from C$15 to C$16.50 to secure the votes necessary to complete the transaction from SZR’s holders.

Ventas then commenced litigation against HCP. It sought to recover $101 million – the amount by which it had to enhance its offer in order to complete the deal – plus punitive damages.

In the ensuing trial, a jury found HCP liable for tortious interference with Ventas’ C$15 deal and awarded $101 million in damages. The Sixth Circuit affirmed their verdict.