Archive for the ‘Mergers and Acquisitions’ Category

Following up on the previous post about “Side Effects-The Challenges Facing the Global Pharmaceutical Industry” by our famous (or infamous) DVD, I was trying to find out what the hell does this “Reverse Break-up Fee” meant and here is what I understood:

Let us first understand what does Break-up fees means. Break-up fees payable by the seller in the event of breaking-off an agreement for a better offer has been a common features of M&As for decades.

So that was Breakup Fee, now you will ask what is Reverse Break-up fee.

Reverse Breakup fees is paid by Buyers to sellers. This allows the buyer to write a check and walk away without added hassle, and give sellers cash – usually 1 to 3 % of the deal price – when buyers back out.

Mr. Rajagopal used the term “Reverse Breakup Fee” that has been a part of the agreement for $68 billion takeover of Wyeth by Pfizer. It came into prime lime light with the announcement of Pfizer’s $68 billion acquisition of Wyeth, containing an eye- opening $4.5 billion reverse breakup fee.

In case of Pfizer-Wyeth agreement, it is important to point out the $4.5 billion reverse termination fee is approximately 7.25 percent of the deal value and half the deal premium. This provides a powerful incentive for Pfizer to close and comfort to Wyeth that it will not be left at the altar, and if it is it has appropriate compensation.

It will be interesting to watch whether Pfizer will be able to buy Wyeth in this economic turbulent times or pays the $ 4.5 billion reverse termination fee.

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