Abreakup 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]
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."
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