Corporate alimony payments can get awfully steep

Terminating a planned merger can be a ten-digit heartbreaker.

Incompatibility. Infidelity. Insistence of federal regulators that your union constitutes anticompetitive behavior.

cost of breaking up a planned merger

Every breakup has its reasons, and most of them bring pain. Not to discount the hole your high school sweetheart tore in your soul, but corporate breakups often carry an extra sting — one felt in the wallet.

  • Breakup fees are a standard piece of mergers and acquisitions, meant to discourage parties from backing out of a deal.

Last week’s business headlines were dominated by the latest proposed mega deal, Capital One’s $35B bid for Discover. Coming along with it: a potential $1.38B breakup fee.

What happens if the deal goes awry?

While Capital One publicly projects confidence that it’ll cross the finish line and create the nation’s largest credit card company, its breakup fee provisions tell a different story, per Axios.

  • Capital One will not pay Discover if regulators block the merger, revealing execs’ nerves that feds won’t approve the deal.

Expect that regulatory drama to consume both companies over the second half of 2024, but if the relationship is nixed sooner, the party that calls it off will likely be writing a big check.

History has seen plenty of those checks

For instance, Dish paid DirecTV a $600m breakup fee after the pair’s 2002 satellite team-up was denied, and Staples paid Office Depot $250m for its judge-jettisoned 2016 flirtation.

But none sting quite as much as AT&T’s failed 2011 takeover of T-Mobile — it wound up paying its rival $4B+, financing improvements that helped T-Mobile better compete with AT&T.

Still, money doesn’t heal all wounds

Like any breakup you’ve experienced, the average corporate split brings emotional pain, too.

Design platform Figma recently netted $1B in breakup fees when Adobe’s proposed $20B purchase fell apart, but the cash has only been so helpful after its “rug got pulled out,” per The New York Times.

Figma’s previous IPO plans now delayed for nothing, internal morale has been dented — Figma employees spent a year in limbo, putting in extra work to seal a financial windfall that’s no longer certain.

The only thing colder is, of course, your high school sweetheart’s icy, icy heart.

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