Breaking up is hard to do? An analysis of termination fee provisions and merger outcomes

Thomas Bates, Michael L. Lemmon

Research output: Contribution to journalArticle

116 Citations (Scopus)

Abstract

We examine the provision of termination fee clauses in merger agreements between 1989 and 1998. Target-payable fees are observed more frequently when bidding is costly and the potential for information expropriation by third parties is significant. Fee provisions appear to benefit target shareholders through higher deal completion rates and greater negotiated takeover premiums. We conclude that target-payable fees serve as an efficient contracting device, rather than a means by which to deter competitive bidding. Bidder fee provisions appear to be used to secure target wealth gains in deals with higher costs associated with negotiation and bid failure.

Original languageEnglish (US)
Pages (from-to)469-504
Number of pages36
JournalJournal of Financial Economics
Volume69
Issue number3
DOIs
StatePublished - Sep 1 2003
Externally publishedYes

Fingerprint

Mergers
Termination
Fees
Takeover premium
Bid
Expropriation
Competitive bidding
Costs
Bidding
Wealth
Shareholders
Contracting

Keywords

  • Acquisition
  • Breakup fee
  • Merger
  • Termination fee

ASJC Scopus subject areas

  • Accounting
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Breaking up is hard to do? An analysis of termination fee provisions and merger outcomes. / Bates, Thomas; Lemmon, Michael L.

In: Journal of Financial Economics, Vol. 69, No. 3, 01.09.2003, p. 469-504.

Research output: Contribution to journalArticle

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