Breakup Fee
A breakup fee is a pre-agreed payment in a merger or acquisition agreement that is payable if the deal does not close under defined conditions. It is specified in the contract with details on the amount, payer, and triggering events, and is intended to deter opportunistic action and to compensate the other party for deal-related costs.
Example: In a hypothetical deal, the merger agreement includes a breakup fee of 2% of the target's equity value payable to the acquirer if the target terminates the agreement to pursue a superior proposal.
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