A confidentiality agreement is a legally binding contract between two or more parties. The agreement is often an employer and employee, in which at least one of the parties agrees not to disclose specific proprietary information. Alternatively, Merger Arbitrage Limited has used these agreements in the past with clients who are then legally bound to not disclose certain investment strategies and proprietary calculations. However, they are also frequently found in mergers and acquisitions where parties discuss a potential takeover. As sensitive financial data is often disclosed, such an agreement will be required. This agreement is also known as an NDA or non-disclosure agreement.
Confidentiality Agreement Example
On December 12, 2019, Fitbit (FIT) filed a DEFM14A in relation to the proposed takeover by Google (GOOG, GOOGL). The document contained 24 references to “confidentiality&agreement”. The first quote is taken from section 1.01 “Definitions”
“Confidentiality Agreement” means the Mutual Confidentiality and Non-Disclosure Agreement, dated as of January 29, 2018, between Parent and the Company, as amended from time to time in accordance with its terms.
The document also specifies an “acceptable confidentiality agreement“,
“Acceptable Confidentiality Agreement” means a confidentiality&agreement that contains terms with respect to confidentiality that are materially no less restrictive of, and otherwise materially no more favorable to, the Third Party that is party to such agreement and its Affiliates and Representatives than the terms set forth in the Confidentiality&Agreement are to Parent and its Affiliates and Representatives.
This additional reference mentions the inclusion of third parties which are covered by a similar agreement.
These confidentiality agreements restrict the amount of details available to the market thus making and investment decision more difficult. In addition, these agreement generally remain in force after a deal is abandoned making a review of confidential discussion equally difficult. However, such an agreement can indicate the seriousness and level of discussion taking place. By also restricting information leakage to the markets, traders are able to make their decisions in a fair and orderly procedure without undue influence and manipulation by insider trading.
