Which of the following is NOT a purpose of a break fee?
A)To reward the original acquirer for generating a competing bid.
B)To compensate the original acquirer for the costs incurred in negotiations.
C)To signal the high value of the target firm to the original acquiring firm.
D)To reduce the probability that a potential acquirer will back out of negotiations.

Question

Quizplus · Accepted Answer

The purpose of a break fee is primarily to deter potential acquirers from backing out of negotiations, by creating a financial penalty for doing so. It can also compensate the original acquirer for costs incurred during negotiations or reward them for generating competing bids. The break fee does not directly signal the high value of the target firm to the original acquiring firm.

Which of the Following Is NOT a Purpose of a Break