Safeguard agreements

Safeguard agreements are contracts that prevent a group of shareholders from acquiring a significant package of shares in a company, usually over a period of time.

Thus, the Safeguard agreements are intended to maintain control of the company for the company's administrative bodies. Therefore, they are defensive strategies used to defend against hostile takeovers. Loss of control of the company is avoided. Other measures that can be used are so-called preferred share repurchase agreements. In this way, control of the business could be quickly regained.

In international trade, the concept of safeguard agreements refers to a series of emergency measures that countries can adopt in emergency situations in which their companies are harmed by international commercial practices that threaten their economy.

How do safeguard agreements work?

First, you must have the support of like-minded stakeholder groups. The shares of these investors will not go on the market, they will be kept in the portfolio, with a resale commitment at a fixed price, which will be higher than the purchase price. If there is a Public Offer of Acquisition, the company will have preference when acquiring those shares over any other interested party.

This is a way of operating that allows the affected company to withdraw from the market between 10 and 15% of its shares quickly. In this way, you will be able to face a Public Acquisition Offer.

Another option is to reach agreements with those shareholders who have stability in the company. In this case, the company agrees not to increase the capital, in exchange for receiving a commission for the fulfillment of this commitment.

Finally, there is the possibility of reaching agreements between the companies during the negotiations of a merger process. Both companies can agree not to negotiate with a third company or not to sell to certain third parties while the evaluation and valuation period of the company takes place.