Antitrust Reverse Termination Fees--2018 Q4 Update

This post updates the public deal antitrust reverse termination fee database through December 31, 2018.

An antitrust reverse termination fee (ARTF), sometimes called an antitrust reverse breakup fee, is a fee payable by the buyer to the seller if and only if the deal cannot close because the necessary antitrust approvals or clearances have not been obtained. The idea behind an antitrust reverse termination fee is twofold: (1) it provides a financial incentive to the buyer to propose curative divestitures or other solutions to satisfy the competitive concerns of the antitrust reviewing authorities and so permit the deal to close, and (2) it provides the seller with some compensation in the event the deal does not close for antitrust reasons.

Our sample now covers 1239 strategic negotiated transactions announced between January 1, 2005, and December 31, 2018. Of these, 155 transactions, or 12.5% of the total, had antitrust reverse termination fees. The fees were very idiosyncratic and showed no statistically significant relationship to the transaction value of the deal or trend over time, with fees ranging from a low of 0.1% to a high of 39.8%. The average antitrust reverse termination fee for the entire sample was 5.3% of the transaction value, although several high percentage fees skewed the distribution to the high end. A better indicator may be the median, which was 4.4% of the transaction value.

We thought it might be helpful to give some statistics for various subsamples covering different periods so that you could get an idea of how, if at all, antitrust reverse terminations fees are varying over time.

The most recent subsample covers the four-year period from January 1, 2015, through December 31, 2018. This subsample covered 417 transactions, of which 66, or about 15.8%, had antitrust reverse termination fees. The fees in this sample had a mean of 4.7%, one-half of a percentage point less than the 5.2% of the full sample, and a median of 4.4%, the same as the full sample. The relative convergence of the mean and the median is consistent with a tighter distribution of the fees, which ranged from a low of 0.6% to a high of 12.5%.

The chart below gives the frequency of antitrust reverse breakup fees across the four-year subsample set.


  

Of the 62 transactions signed since January 1, 2015, with an antitrust reverse termination fee for which the antitrust reviews have been completed, 49, or about 79%, were cleared without any antitrust challenge. Three transactions (Staples/Office Depot, Aetna/Humana, and Anthem/Cigna) were terminated after the reviewing agency obtained a preliminary injunction in federal district court, one transaction (Walgreens Boots/Rite Aid) was abandoned in the face of agency opposition, seven transactions closed subject to a DOJ or FTC consent order, one subject to a Public Utilities Commission order, and one transaction (AT&T/Time Warner) defeated an Antitrust Division preliminary injunction challenge and closed (the DOJ has appealed).

Dale Collins
+1.212.848.4127
dale.collins@shearman.com

Resources:
  Antitrust Reverse Termination Fees--Data Set (January 1, 2005, through December 31, 2018)

Antitrust Reverse Termination Fees--2018 Q3 Update

This post updates the public deal antitrust reverse termination fee database through September 30, 2018.

An antitrust reverse termination fee (ARTF), sometimes called an antitrust reverse breakup fee, is a fee payable by the buyer to the seller if and only if the deal cannot close because the necessary antitrust approvals or clearances have not been obtained. The idea behind an antitrust reverse termination fee is twofold: (1) it provides a financial incentive to the buyer to propose curative divestitures or other solutions to satisfy the competitive concerns of the antitrust reviewing authorities and so permit the deal to close, and (2) it provides the seller with some compensation in the event the deal does not close for antitrust reasons.

Our sample now covers 1217 strategic negotiated transactions announced between January 1, 2005, and September 30, 2018. Of these, 154 transactions, or 12.7% of the total, had antitrust reverse termination fees. The fees were very idiosyncratic and showed no statistically significant relationship to the transaction value of the deal or trend over time, with fees ranging from a low of 0.1% to a high of 39.8%. The average antitrust reverse termination fee for the entire sample was 5.2% of the transaction value, although several high percentage fees skewed the distribution to the high end. A better indicator may be the median, which was 4.4% of the transaction value.

We thought it might be helpful to give some statistics for various subsamples covering different periods so that you could get an idea of how, if at all, antitrust reverse terminations fees are varying over time.

The most recent subsample covers the three-year-plus period from January 1, 2015, through September 30, 2018. This subsample covered 395 transactions, of which 65, or about 16.5%, had antitrust reverse termination fees. The fees in this sample had a mean of 4.67%, a little more than one-half of a percentage point less than the 5.2% of the full sample, and a median of 4.4%, the same as the full sample. The relative convergence of the mean and the median is consistent with a tighter distribution of the fees, which ranged from a low of 0.6% to a high of 8.8%.

The chart below gives the frequency of antitrust reverse breakup fees across the three-year-plus subsample set.

  

Of the 55 transactions signed since January 1, 2015, with an antitrust reverse termination fee for which the antitrust reviews have been completed, 43, or about 78%, were cleared without any antitrust challenge. Three transactions (Staples/Office Depot, Aetna/Humana, and Anthem/Cigna) were terminated after the reviewing agency obtained a preliminary injunction in federal district court, one transaction (Walgreens Boots/Rite Aid) was abandoned in the face of agency opposition, six transactions closed subject to a DOJ or FTC consent order, and one transaction (AT&T/Time Warner) is in litigation.

Dale Collins
+1.212.848.4127
dale.collins@shearman.com

Resources:
  Antitrust Reverse Termination Fees--Data Set (January 1, 2005, through September 30, 2018)

Sample Antitrust Risk-Shifting Provisions in M&A Transactions--2018 Edition

This note updates and expands the sample of antitrust-related provisions in M&A agreements over the one we posted in November 2014. As in the earlier edition, the sample provisions have been taken (sometimes with a little modification) from actual M&A agreements. 

This sample will give you with a good idea of the wide variety of provisions parties have used, including:

• the jurisdictions and the timing where merger control filings are to be made;
• the level of cooperation the parties owe each other in defending the transaction;
• who controls the defense strategy
• the antitrust-related conditions precedent
• whether the parties are obligated to litigate an adverse agency decision and, if so, who controls the litigation strategy and how long will the parties have to litigate before the drop-dead date;
• whether the buyer is obligated to "fix" any antitrust concerns through consent decree relief and how far this obligations goes;
• whether an antitrust reverse termination fee is to be paid in the event of a failure of the antitrust conditions; and
• the conditions under which the agreement may be terminated or the drop-dead date extended

Of course, every deal stands on its own. The language that has been used in one deal may not be appropriate for another deal, and inclusion of a provision in this sample does not constitute an endorsement of the language. Still, I find the collection helpful in drafting and negotiating the antitrust provisions in M&A agreements.
 

Dale Collins
+1.212.848.4127
dale.collins@shearman.com