Breakup Fees in NYSE’s Deal With ICE Show Lessons From Past
After its attempted merger with Deutsche Börse collapsed, NYSE Euronext‘s board grew a little wary of jumping into another major deal that could fall apart on antitrust grounds.
A reading of the exchange operator’s sale agreement with the IntercontinentalExchange suggests that the Big Board’s parent has taken that lesson to heart.
If the $ 8.2 billion sale falls apart on antitrust grounds, ICE will owe NYSE Euronext a breakup fee of $ 750 million. That’s about a 9.1 percent breakup fee, on the high side for major deals.
But it isn’t a record by any means. AT&T’s breakup fee in its aborted $ 39 billion bid for T-Mobile USA was — depending on whom you asked — 10 percent to 15 percent of the total deal price.
And Google was liable for a $ 2.5 billion breakup fee in its takeover of Motorola Mobility, which was worth some 20 percent of the $ 12.5 billion deal. (Subtract the $ 3 billion in cash that Motorola held, and that was a whopping 26 percent.)
According to the merger agreement, if either NYSE Euronext or ICE chooses to break off the deal because of another higher offer, or if either materially breaches contractual requirements, the penalty is $ 300 million, a much more customary 3.6 percent of the total deal price.
If the board of either company changes its mind, the breakup fee rises to $ 450 million. If shareholders of one of the exchange operators fail to approve the merger, then their company is on the hook for a $ 100 million breakup fee.
People briefed on the matter said on Thursday, before the merger agreement was filed, that the breakup fees were “market rate” and wouldn’t be seen as excessive.
(By the way, it appears that the deal’s architects are sports fans. The document refers to NYSE Euronext as the “Yankees,” for obvious reasons. ICE is named “Braves,” after the Major League Baseball team in its hometown of Atlanta.)