Breakup fee

A breakup fee (sometimes called a termination fee) is a penalty set in takeover agreements, to be paid if the target backs out of a deal (usually because it has decided instead to accept a more attractive offer). The breakup fee is ostensibly to compensate the original acquirer for the cost of the time and resources expended in negotiating the original agreement. A breakup fee also serves to inhibit competing bids, since such bids would have to cover the cost of the breakup fee as well.

Reverse breakup fee

A reverse breakup fee is a penalty to be paid to the target company if the acquirer backs out of the deal, usually because it can’t obtain financing. Reasons for such fees include the possibility of lawsuits, disruption of business operations, and the loss of key personnel during the period when the company is "in play."

Examples

As a result of the failed 2011 merger of AT&T and T-Mobile, AT&T will have to pay a reverse breakup fee of $3 billion in cash and $1-3 billion in wireless spectrum.^[1]

If Japanese corporation SoftBank's $20 billion bid to buy 70% of Sprint Nextel falls through, SoftBank will have to pay a $600 million breakup fee.^[2] SoftBank completed the deal with Sprint and is no longer subject to the reverse termination fee. ^[3]

Sources

Tarbert, Heath Price "Merger Breakup Fees: A Cricical Challenge to Anglo-American Corporate Law". Law and Policy in International Business Spring 2003 accessed 16 Aug, 2011.

Breakup fee

Reverse breakup fee

Examples

Sources

References