A Break-up fee is a payment made by the target to the acquirer in the event of the target deciding against consummating the deal or as otherwise specified in the merger agreement (see below). Although this fee is officially referred to as a “Termination Fee”, there is rarely any mention of this specific terminology in official documents (see example below). The fee is contrasted with the Reverse Termination Fee or Reverse Break-up fee.
See Termination Fee.
Break-up Fee Example
The following passage is taken from an 8-K filing made by Forescout Technologies (FSCT) on February 7, 2020
The Merger Agreement contains certain termination rights for the Company and Parent. Upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee of $55,832,270. Specifically, if the Merger Agreement is terminated by (1) Parent, if the Board changes its recommendation with respect to the Merger, (2) Parent, if the Company breaches or fails to perform, in accordance with the Merger Agreement, in any material respect its obligations under the alternative acquisition solicitation provisions in the Merger Agreement, or (3) the Company, if the Board authorizes the acceptance of a superior proposal and such proposal was not solicited in breach of the alternative acquisition solicitation provisions in the Merger Agreement, then, in each case, the termination fee will be payable by the Company to Parent upon termination. However, under certain circumstances as described in the Merger Agreement, if the Company terminates the Merger Agreement to enter into a superior proposal with an Excluded Party (as such term is defined in the Merger Agreement), then the amount of the termination fee payable to Parent will be $37,221,513.
The proposed value of the deal is $1.9bn. Thus, the termination fee payable, should the target break the deal is approximately 3%.
