What is a Reverse Termination Fee?

What is a Reverse Termination Fee?

Q: What is a reverse termination fee? Professor Rock: An RTF is a fee payable by the buyer to the seller in the event of non-consummation, often due to failure to receive antitrust clearance within a certain time frame or failure to secure financing for the transaction.

Why is it called a reverse termination fee?

A reverse termination fee is also known as a reverse breakup fee. It refers to the amount of money paid to the target company after the acquirer backs out of the deal or the transaction fails to complete. Usually, the reverse termination fee is included in the acquisition agreement.

What’s market reverse termination fee?

A reverse break-up fee for antitrust failure is a termination fee that the buyer agrees to pay the seller if it is unable to close an acquisition because of its failure to obtain the required approvals for the deal under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) and other antitrust laws.

What is a termination fee merger?

A break-up fee, also known as a termination fee, is one of several deal-protection devices that buyers and target companies use to ensure that a proposed acquisition or merger transaction closes as planned.

What is RTF in M&A?

Reverse termination fees

As the name suggests, RTFs allow the seller to collect a fee should the buyer walk away from a deal.

What is a fiduciary out?

A fiduciary out is a provision in an acquisition agreement or exclusivity agreement that gives the target the right to terminate the transaction if a superior offer is accepted by the board pursuant to its fiduciary duties.

What is the go shop process?

In its purest form, a go-shop process involves an exclusive (or nearly exclusive) negotiation with a single buyer, followed by an extensive post-signing go shop process to see if a higher bidder could be found.

What is a lock up option?

A lock-up option is a contract that favors a friendly company in a takeover battle by promising it some of the target company’s shares or best assets. Lock-up options are not options in the trading sense, so they are not subject to rules or regulations beyond basic contract law.

What is no shop agreement?

A no-shop clause is a condition in an agreement between a seller and a potential buyer that prevents the seller from getting an offer from another buyer. … No-shop clauses prevent bidding wars or unsolicited bids from trumping the position of the potential buyer.

Do you need a fiduciary out?

A fiduciary out must be explicitly drafted in the contract. Typically, it is the target company’s board that requires a fiduciary out. However, the buyer’s board may also request a fiduciary out if the buyer is paying the consideration with stock and requires a vote of its own stockholders.

What is a fiduciary clause?

It is acknowledged that the Adviser shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Corporation, whether or not in the Adviser’s immediate possession or control.

How common are go shop provisions?

Over the last two years, go-shop provisions have become more common. According to a recent ABA study, 2% of deals announced in 2005 had go-shop provisions while 29% of deals announced in 2006 had them.

What happens after a go shop period?

Go-shop periods are a timeframe, generally one to two months, where a company being acquired can shop itself for a better deal. Go-shop provisions generally allow the initial bidder to match any competing offers, and if the company is sold to another buyer they are generally paid a breakup fee.

How long are go shop periods?

What’s a Go-Shop? A go-shop is a provision in a merger agreement that allows a target to solicit interest from potential buyers of the company for a lim- ited period of time (typically between 20-55 days) after signing a definitive agreement with an initial buyer.

What are Revlon duties?

The logic of the decisions and this new unified standard imply that the so-called Revlon dutyan affirmative legal obligation to conduct a fair auction for the company and to sell it to the highest bidderno longer exists under Delaware law.

Why do periods lock-up?

Lock-up periods are when investors cannot sell particular shares or securities. Lock-up periods are used to preserve liquidity and maintain market stability. Hedge fund managers use them to maintain portfolio stability and liquidity. Start-ups/IPO’s use them to retain cash and show market resilience.

What is a lock-up fee?

In consideration of Holder’s compliance with the covenants set forth in Article VIII, the Company hereby agrees to pay to Holder, or its designee, a fee in the amount of ($ ), representing two percent (2.0%) of the aggregate principal amount of the Sold Notes (the Lock-Up Fee).

What is the example of mergers?

Merger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.

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