Why does the acquiring company still have to pay even if the merger doesn't go through?

When a merger or acquisition fails, the acquiring company often incurs significant financial and reputational costs. Here's a breakdown of the key impacts:

1. Breakup Fees:
   The acquiring company may agree to pay a breakup fee to the target company if the deal collapses. This fee compensates the target for its time, resources, and lost opportunities.
   Example: In 2018, Pfizer paid Allergan $150 million after their $160 billion merger was terminated due to changes in U.S. regulations.

2. Termination Fees:
   These fees apply when a deal is canceled for specific reasons, such as the target company accepting a competing offer or regulatory challenges blocking the transaction.

3. Legal and Due Diligence Costs:
   The acquiring company bears the expenses for legal, financial, and advisory services. These costs are sunk expenses that cannot be recovered if the deal fails.

4. Reputational Damage:
   A failed merger can harm the acquiring company's reputation, reducing investor confidence and potentially affecting future business opportunities.

Proactive Measures for Success

To reduce risks, companies should:

• Negotiate fair and reasonable breakup fees.

• Conduct comprehensive due diligence.

• Thoroughly assess regulatory landscapes to minimize potential liabilities.

For expert assistance in navigating M&A agreements and mitigating risks, contact Lawcrust Legal Consulting at +91 8097842911.