lock-up option


Stock-sale or asset-sale offer by a takeover-target firm to a friendly acquirer (the white knight) to frustrate a hostile acquirer (the black knight). This offer for the sale of the major assets (the crown jewels) or controlling shares is attractively priced but freezes (locks-up) the assets or shares so that they cannot be resold without the target firm's approval. Since this strategy may hinder fair bidding, courts often disallow it except in cases where it encourages greater competition among bidders. It is not considered a derivative instrument since its primary underlying is the occurrence of a business combination and is therefore not subject to Financial Accounting Standards Board (FASB) statement 133.
also called lock up agreement, lock up clause, lock up defense, lock up provision.
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lock-up cd lockup period