Penalty in a corporate takeover contract
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.[1]
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."
Notable 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.[2]
- After Adobe abandoned its planned acquisition of Figma in 2023 due to antitrust concerns from regulatory authorities in the UK and EU, Adobe was required to pay Figma $1 billion in cash.[3][4]
- If Japanese corporation SoftBank's $20 billion bid to buy 70% of Sprint Nextel fell through, SoftBank would have had to pay a $600 million reverse breakup fee.[5] SoftBank completed the deal with Sprint and is no longer subject to the reverse termination fee.[6]
Sources
- Tarbert, Heath Price "Merger Breakup Fees: A Critical Challenge to Anglo-American Corporate Law". Law and Policy in International Business Spring 2003 accessed 16 Aug, 2011.
References
- ^ Goodman (2014). Dictionary of finance and investment terms. (9th ed.). [Online]. Hauppauge: Barron's Educational Series. Hauppauge: Barron's Educational Series.
- ^ "T-Mobile and AT&T: What's $2 Billion Among Friends?".
- ^ Goswami, Hayden Field,Rohan (2023-12-18). "Adobe and Figma call off $20 billion acquisition after regulatory scrutiny". CNBC. Retrieved 2024-03-01.
{{cite web}}: CS1 maint: multiple names: authors list (link) - ^ "Adobe Inc. Form 8-K SEC filing". www.sec.gov. 2023-12-18. Retrieved 2024-03-01.
- ^ Cecilia Kang; Chico Harlan (2012-10-16) [2012-10-15]. "Sprint Nextel takeover by Softbank could save unlimited data plans from extinction". The Washington Post. Washington, D.C. ISSN 0190-8286. OCLC 1330888409.[please check these dates]
- ^ "Press Releases | T‑Mobile Newsroom".
