Definition
A lock-up agreement (sometimes called a voting agreement or tender support agreement) is a contractual commitment by a significant shareholder to tender into (or vote for) a specific transaction. Common in friendly tender offers where a strategic shareholder (founder, large institution) signs up to tender ahead of the broader holder base.
Why they matter
- Locks in deal certainty for the bidder before commencement
- Reduces the risk of competing bids succeeding (the locked-up shares are effectively unavailable to a topping bid)
- Signals shareholder confidence to the broader holder base
Limitations
- Typically include “fiduciary out” provisions allowing target boards to support a superior offer
- Subject to all-holders / best-price rule scrutiny if the locked-up holder receives any benefit beyond the same offer price
- May trigger Schedule 13D group-formation issues if multiple holders coordinate
Voting trust variant
In some structures, the locked-up shares are placed in a voting trust to ensure performance.