A breakup fee (sometimes called a termination fee) is a penalty set in
takeover
In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to ...
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
Penalty or The Penalty may refer to:
Sports
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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.
* If Japanese corporation
SoftBank
is a Japanese multinational conglomerate holding company headquartered in Minato, Tokyo which focuses on investment management. The Group primarily invests in companies operating in technology, energy, and financial sectors. It also runs the Vi ...
's $20 billion bid to buy 70% of
Sprint Nextel
Sprint Corporation was an American telecommunications company. Before it Merger of Sprint Corporation and T-Mobile US, merged with T-Mobile US on April 1, 2020, it was the fourth-largest mobile network operator in the United States, serving 54.3 ...
fell through, SoftBank would have had to pay a $600 million breakup fee. SoftBank completed the deal with Sprint and is no longer subject to the reverse termination fee.
Sources
Tarbert, Heath Price "Merger Breakup Fees: A Critical Challenge to Anglo-American Corporate Law". ''Law and Policy in International Business'' Spring 2003accessed 16 Aug, 2011.
References
Mergers and acquisitions
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