Milwaukee Business Attorneys & Lawyers

What Is a Breakup Fee?

A breakup fee, also known as a termination fee, is a cost that happens if the seller backs out of a deal during a takeover or merger and acquisition agreements. It gives compensation to the potential purchaser for the time and resources they used to create the deal.

Breakup fees are usually between 1 and 3 percent of the deal's total value. In Delaware, courts regularly find breakup fees between 3 and 4 percent acceptable.

Where Do You Include a Breakup Fee?

Breakup fee talks are an important part of the letter of intent (LOI) negotiation, and there are cases where merger deals have not happened because both parties could not agree on a breakup fee.

Why Is a Breakup Fee Important?

Mergers and acquisitions don't always include

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What Is Paid-In Capital?

Paid-in capital (PIC) is the amount of capital investors have "paid in" to a corporation by purchasing shares in exchange for equity.

A paid-in capital account does not show the individual contributions of each investor, just the total amount provided by all investors.

Primary Market

The primary market is the part of the capital market that issues new securities. It is through the primary market that people invest in a corporation by purchasing stock, raising the corporation's PIC figure.

Stock purchased in the open market from other stockholders (secondary market) does not affect paid-in capital.

Additional Paid-In Capital

Paid-in capital can also refer to a balance sheet entry, often listed under stockholder's eq

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Poison Pill: What Is It?

A poison pill is a defense tactic companies use to deter or prevent hostile takeovers. These "shareholders rights plans" often threaten to dilute the price of stock enough to give the target company time to find alternative bids. It creates a cost that the purchasing company will have to pay after they've taken over. It also dilutes the value of the acquiring company's stock, to make taking over less appealing.

One company tries to wage a hostile takeover of another company by buying a large percentage of those shares. The company being taken over is called the target. The company or wealthy individual trying to take over is often called a corporate raider. The term poison pill does not refer to the target company harming their own interests. Instead, they're harming the corporate raider's interests.

Typically, corporate raiders try to increase a company's stock price when they acquire the company because

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