A Lock Up or Lock-up period, is a generic term for an agreement or arrangement giving a favored party an exclusive right or privilege. This privilege will not be accessible to other parties. The term moratorium is often used to convey the same meaning or situation. In mergers and acquisitions, a lock-Up refers to the target company not being able to be acquired by any person or firm that is not observed within the Lock-Up agreement.
If this lock-up has been arranged then although the target is not able to solicit alternative bids, there may still be competing offers from additional suitors. The language used in this type of arrangement is often specific to the deal at hand and must be studied closely by the trader.
Directors are often wary that by entering a lock up they may be in breach of their fiduciary duty. If they are confident thus is not the case however a lock up can be negotiated. This gives the parties, the acquirer and the target a firmer footing upon which to advance the deal.
Although a lock up reduces the possibility of a higher bid from a rival suitor, something which traders generally welcome (unless they have taken a short position), it does increase the certainty of the deal by indicating the seriousness of each party the consummate as agreed.
Additional examples and uses of lock-ups are in voting arrangements. In this instance, the holder of the right to vote has agreed to vote in a certain way or in accordance with instructions from another party (subject to and legal requirements or restrictions). In financing, a lock-Up may refer to the source of the finance. It may be the case that no other party will be able to access financing from that particular bank or institution.
Lock Up Example
Lock-ups may also refer to the restricted selling of stock by certain key employess during a merger or even following an IPO. The following text is taken from the Form PRER14A filing with the SEC made by Tallgrass Energy (TGE) on March 9, 2020 in relation to the proposed takeover by an affiliate of Blackstone
Lock-Up and Non-Compete Agreements
Pursuant to thelLock-Up and Non-Compete Agreements, for a period of one year following the closing of the March 2019 Blackstone Acquisition (the “Lock-Up Period”), each March l Lock-Up Party has agreed not to sell, transfer, assign or otherwise dispose of any of his TE Units and corresponding Class B shares retained following the closing of the March 2019 Blackstone Acquisition (together with any Class A shares exchangeable therefor) or, in the case of Messrs. Dehaemers and Moler, certain Class A shares retained by their respective trusts following closing of the March 2019 Blackstone Acquisition (collectively, the “Retained Interests”). The Retained Interests of the March l Lock-Up Parties consist of an aggregate of 3,210,085 Class A shares and 1,481,754 Class B shares (together with an equal number of TE Units), which includes all of the outstanding Unaffiliated Class B Shares.
The Lock-Up Period will expire on March 11, 2020.
In this document, the lock-up period refers to the time period where directors are restricted from trading their stock acquired in a previous contractual arrangement. Traders should be aware of how these interests may differ and may not be aligned with the interests of the common stockholder.
