The Orange View (on hiatus) Because Apple is great but it isn't perfect


Google’s big breakup fee helps Google

Too much bs and nonsense has been written about the $2.5 billion break-up fee Google agreed to pay if its Motorola deal runs aground. For some more informed analysis, turn to Ohio University finance professor and former deal attorney Steven Davidoff. He's not only an experienced mergers and acquisitions experts, he's also actually read Google's 67-page merger plan filed with the Securities and Exchange Commission.

One basic fact that seems to have escaped many commentators is that the fee is only paid if the deal is cancelled for antitrust reasons. It's not a giant "get out of jail free" payment for any and all problems.

But does it then signal that the deal is likely to have big problems with antitrust regulators and Motorola insisted on a big breakup fee? Au contraire, argues Professor Davidoff. The size of the fee gives Google better negotiating leverage with regulators.

This big fee, however, may not be a signal that there is an antitrust risk that the deal will be blocked, but a statement to the market of the opposite: that there is no such risk. By agreeing (or perhaps even proposing) such a large fee, Google is saying this is not a problem. And antitrust authorities are now put on notice that if they decide to give Google a hard time, the company is not only going to fight this but will be willing to pay for the fight to the tune of $2.5 billion.

This fee may therefore be a statement by Google that the antitrust authorities should tread carefully in examining and challenging this deal.

There is precedent for this. When Microsoft agreed to buy aQuantive in 2007 for $6 billion, it agreed, likely for similar reasons, to a $500 million reverse termination fee, or just over 8 percent of the deal value.

-NY Times Dealbook blog, August 18, 2011

And how did that deal go? Microsoft closed the deal in three months with no regulatory issues.

Posted by Aaron Pressman

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