Lock-up provision

Lock-up provision is a term used in corporate finance which refers to the option granted by a seller to a buyer to purchase a target company’s stock as a prelude to a takeover. The major or controlling shareholder is then effectively "locked-up" and is not free to sell the stocks to a party other than the designated party (potential buyer).

Typically, a lockup agreement is required by an acquirer before making a bid and facilitates negotiation progress. Lock-ups can be “soft” (shareholder permitted to terminate if superior offer comes along) or “hard” (unconditional).

Types of lock-up arrangements

These provisions may take the form of
*(i) break-up/termination fees,
*(ii) options given to target shareholders to buy target stock,
*(iii) rights given to target shareholders to purchase target assets,
*(iv) force the vote provisions in merger agreements, and
*(v) agreements with major shareholders (voting agreements, agreements to sell shares or agreements to tender).

In a stock lock-up, the bidder is able to either purchase 1) authorized but unissued shares of the major or controlling stockholder, or 2) the shares of one or more large stockholders. The acquirer holds the option to exercise the shares at a higher price in the event of sale to a higher bidder, or to vote in favor of the acquirer’s bid.

An asset lock-up occurs when the target firm grants an option for the acquisition of an asset. This is also known as a crown jewel lock-up.

Legal System vs. Lock-Up Provisions

In many cases, lock-up provisions may impede “free competition”, and thereby restrict the market from acting naturally by preventing rival bids for the target company.

Courts will approve lockups if they find that the lockup was used to encourage a bidder to make an offer and not as a device to end an auction or bidding process. Asset lock-ups, however, discourage other bidders, and are generally discouraged by the courts.

ee also

* Poison pill
* Mergers and acquisitions
* Microeconomics
* Industrial organization


Wikimedia Foundation. 2010.

Look at other dictionaries:

  • Lock up — can refer to:* Lock up provision, a corporate finance term * Lock up period, a term concerning initial public offerings of stock * Lock Up (US band), an American rock band, featuring guitarist Tom Morello during his pre Rage Against the Machine… …   Wikipedia

  • lock-up — ˈlock up adjective FINANCE 1. lock up agreement/​pact an agreement by which money is invested in such a way that it cannot be used for a period of time 2. lock up period a period of time during which money is invested in such a way that it cannot …   Financial and business terms

  • stock lock — n. A provision that prevents an employee from moving the stock they own in the company to other investments until the employee reaches a certain age (usually 55). Also: stock lock. Example Citation: The ethical maybe criminal core of the scandal… …   New words

  • Charles Lock — Not to be confused with Charles Locke (disambiguation). Charles Lock Born 1770 Died 12 September 1804 (aged 33–34) Malta Cause of death Plague Resting place Malta …   Wikipedia

  • Molesey Lock — Molesey Lock[1] The lock after the release of 160,000 Rubber ducks at the start of the Great British Duck Race in September 2007 Waterway …   Wikipedia

  • Bicycle lock — A bicycle lock is a physical security device used on a bicycle to prevent theft. It is generally used to fasten the bicycle to a bicycle stand or other immovable object.An important difficulty in preventing the theft of a bicycle is that the… …   Wikipedia

  • air lock — 1. Civ. Eng. an airtight chamber permitting passage to or from a space, as in a caisson, in which the air is kept under pressure. 2. the impedance in the functioning of a pump or a system of piping caused by the presence of an air bubble; vapor… …   Universalium

  • Stock lock — Stock Stock (st[o^]k), n. [AS. stocc a stock, trunk, stick; akin to D. stok, G. stock, OHG. stoc, Icel. stokkr, Sw. stock, Dan. stok, and AS. stycce a piece; cf. Skr. tuj to urge, thrust. Cf. {Stokker}, {Stucco}, and {Tuck} a rapier.] 1. The stem …   The Collaborative International Dictionary of English

  • Shareholders' agreement — A shareholders agreement (sometimes referred to in the U.S. as a stockholders agreement) is an agreement between the shareholders of a company.In strict legal theory, the relationships between the shareholders (as between themselves) and between… …   Wikipedia

  • Takeover — This article is about the business term. For Takeover, see Takeover (disambiguation). For the science fiction series, see Hostile Takeover Trilogy . In business, a takeover is the purchase of one company (the target) by another (the acquirer, or… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.