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.[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]
  • 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 breakup fee.[3] SoftBank completed the deal with Sprint and is no longer subject to the reverse termination fee.[4]

Sources
gollark: Spitfires are quite common, are they not?
gollark: We must kill all noninterestingcode dragons.
gollark: I think I've only ever caught one aeon myself and about... three? chronos.
gollark: You know what's very annoying? On the trade hub, your offers just sit there - no way to tell if they're considering it or whatever.
gollark: I mostly use volcano, but *still*.

References
  1. Goodman (2014). Dictionary of finance and investment terms. (9th ed.). [Online]. Hauppauge: Barron's Educational Series. Hauppauge: Barron's Educational Series.
  2. https://dealbook.nytimes.com/2011/12/20/att-and-t-mobile-whats-2-billion-among-friends/
  3. https://www.washingtonpost.com/business/technology/sprint-nextel-takeover-by-softbank-could-save-unlimited-data-plans-from-extinction/2012/10/15/4b153d04-16e1-11e2-8792-cf5305eddf60_story.html
  4. http://newsroom.sprint.com/news-releases/sprint-and-softbank-announce-completion-of-merger.htm


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