LOCK-UP OPTION
A stock option offer by takeover-target company to a friendly acquirer for additional equity or for purchasing a valuable portion of their firm. Selling the major assets or controlling shares will be attractively priced but freezes these assets or shares so it cannot be sold again until the target company’s approval. Since this scheme may hinder balanced bidding, courts oftentimes reject it except in cases where it encourages greater competition among bidders. This is not regarded as a derivative instrument since its primary essential is the incident of a business combination. Therefore, it is not subject to Financial Accounting Standards Board (FASB) statement 133.
Also called lock-up defense, lock up clause, or lock up provision.
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