Break fee

A target break fee is payable if the target walks, typically because its board accepts a superior proposal. It compensates the buyer for the cost and opportunity of having bid, and it makes a competing offer slightly more expensive.

A reverse break fee runs the other way and is usually much larger. It is payable if the buyer fails to complete, most often because financing falls away or a regulator blocks the deal, and it is the target's protection against being taken off the market for months for nothing.

Size is constrained by more than negotiation, and the UK position is the one people most often state out of date. Rule 21.2 of the Takeover Code has generally PROHIBITED target break fees since 2011, rather than capping them: the 1% of offer value figure still widely quoted is the pre 2011 rule. Narrow exceptions survive, including where the target has run a formal sale process and where a hostile offer has already been announced, and the Panel can consent. That is a marked contrast with US practice, where a target break fee of 3% to 4% is routine.

Reverse fees for antitrust risk can be far larger, sometimes several percent, because that is the risk the buyer is asking the target to accept.