breakup fee

Definition

A type of provision found in a takeover agreement that will require a company to pay the investment banker a large sum of money if another firm takes over the target firm. This fee will tend to discourage other firms from making any bids for the target company. In some agreements, this is a fee that the seller is required to pay a buyer if the seller decides not to close the deal. The seller will typically do this if they have received a better bid from another buyer after they have already entered into negotiations. Essentially, the breakup fee exists to compensate the first buyer, who has no control over the change in the situation.
Typically the breakup fee is between 1 and 3 percent of the sale price.
Browse Definitions by Letter: # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
breakpoint sale breakup value