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Finance: What is a Breakup Fee? 1 Views


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What is a Breakup Fee? Breakup fees are used when companies are sold. The seller writes a breakup fee into the deal just in case the buyer backs out. It’s usually a very small portion of the actual value of the deal but enough to provide a bit of protection for the seller.

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Transcript

00:00

Finance a la shmoop... what is a breakup fee? Isn't this what Taylor Swift wanted [Taylor Swift on the red carpet]

00:07

to charge the Biebs or was that the weekend and what were mr. and mrs.

00:11

weekend thinking when they named him The anyway..wait is this supposed to

00:15

be about Selena and whatever maybe not well in corporate suitorship there's

00:20

the same kind of you know tit for tat that is cantaloupe wants to acquire [Cantaloupe and a grape appear]

00:25

grape for a hundred million bucks but cantaloupe is worried that grape will

00:30

want to sew her seeds with you know other suitors there's the watermelon

00:35

wuzzle the pumpkin press and the squash squash well cantaloupe feels like it's [Cantaloupe with $100m]

00:41

paying a full price in the hundred million dollars it has offered but it's

00:45

worried about idiots meaning everyone who doesn't agree with it or isn't

00:49

aligned with cantaloupe yeah they're by definition an idiot according to [Man holding out a cantaloupe]

00:53

cantaloupe well that is a financially irrational other suitors who might want

00:58

to pay a hundred five million or a hundred ten million or a hundred fifteen

01:02

million dollars so as part of the term sheet that gives grape thirty days to[Term sheet appears]

01:06

fully sign or commit and be done well, grape has to pay cantaloupe a breakup

01:12

fee if grape decides to go with someone else who wants to buy her that breakup

01:17

fee is a fee for breaking up the deal between cantaloupe and grape and it

01:21

might be something like 10 percent of the deal and this is really important

01:25

because then if pineapple wants to buy grape [Pineapple appears with cantaloupe and a grape]

01:28

well pineapple will not only have to pay meaningfully more than the hundred

01:32

million dollars of cantaloupe but it'll have to pay grape the breakup fee as

01:37

well making the total cost of the deal the pineapple well you know pretty

01:41

prickly...

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