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

Thomas W. Bates, Michael L. Lemmon

Research output: Contribution to journalArticlepeer-review

159 Scopus citations


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
Issue number3
StatePublished - Sep 1 2003
Externally publishedYes


  • Acquisition
  • Breakup fee
  • Merger
  • Termination fee

ASJC Scopus subject areas

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


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