break-up fee


break-up fee
USA
Also known as a break fee or a termination fee. This term has a number of meanings. In the context of:
Mergers and acquisitions, a payment from the seller to the buyer if a merger or acquisition transaction is not completed as a result of certain actions by the seller, such as breaching a no-shop clause or entering into a transaction with a different buyer. Break-up fees help the buyer cover the expenses of planning, negotiating and investigating a transaction if it is not completed, as well as protecting the buyer if the seller receives a competitive offer. Break-up fee provisions are typically included in the purchase or merger agreement. Compare this to reverse break-up fees which are payments from the buyer to the seller if a transaction is not completed as a result of certain actions by the buyer.
Acquisition financings, a payment from the buyer to the agent banks if the buyer is paid a break-up fee by the seller because the deal did not close. Break-up fees for bank loans range from merely reimbursement of the agent banks' out-of-pocket expenses (including legal fees) after the buyer's expenses are covered (or shared with the buyer on a pro rata basis) to a specified percentage of the fee received by the buyer (such as 25% net of reimbursement of the buyer's out-of-pocket expenses).
See also

Practical Law Dictionary. Glossary of UK, US and international legal terms. . 2010.