Bloomberg News

Google Deal Said to Have $2.5 Billion Reverse Breakup Fee

August 15, 2011

(Updates with professor’s comment in eighth paragraph.)

Aug. 15 (Bloomberg) -- Google Inc. agreed to pay Motorola Mobility Holdings Inc. $2.5 billion if it fails to close the purchase of the mobile-phone maker, said a person with knowledge of the situation, a fee more than six times the typical amount.

Google would pay Motorola Mobility the reverse breakup fee under certain circumstances, said the person, who declined to be identified because the detail hasn’t been disclosed. Google agreed to buy Motorola Mobility for $12.5 billion today.

On a percentage basis, the fee is more than triple the $3 billion AT&T Inc. is offering as part of its $39 billion bid for Deutsche Telekom AG’s T-Mobile USA, the largest deal this year. Both AT&T and Google face increasing scrutiny as regulators examine whether their acquisitions are stifling competition in the telecommunications and Internet industries.

“A high reverse breakup fee shows the buyer’s confidence of getting the deal done,” said Donna Hitscherich, a senior lecturer in finance at Columbia Business School, who is also a former banker and lawyer. “People don’t do deals to get the breakup fee, they do them to get the deals done.”

Google’s fee is about 26 percent of the transaction’s enterprise value, or more than six times the 3.8 percent median in more than 200 deals announced since Jan. 1, 2010, according to data compiled by Bloomberg. Enterprise value includes net debt. AT&T’s breakup fee is 7.7 percent of the transaction’s size. The Dallas-based phone company made its cash and stock offer for T-Mobile in March.

Motorola’s Fee

Jennifer Erickson, a spokeswoman for Motorola Mobility, declined to comment, as did Aaron Zamost, a spokesman for Mountain View, California-based Google.

Motorola Mobility, based in Libertyville, Illinois, would pay a $375 million breakup fee if it decides not to sell to Google, the person familiar with the matter said.

In most deals, buyers and sellers agree to pay identical breakup fees, said Elizabeth Nowicki, a mergers and acquisitions law professor at Tulane University Law School in New Orleans. Still, an increasing number of sellers began asking for higher reverse breakup fees beginning in late 2007, when financing started to become more of an obstacle for some buyers, she said.

“The unusually high reverse breakup fee shows that Motorola doesn’t want to risk being left alone at the altar, especially in the current market’s conditions,” Nowicki said.

Google is confronting probes at home and abroad into its impact on competition. The U.S. Federal Trade Commission is expanding a probe into whether the Internet company has used its position as the world’s most popular search engine to hurt competition, people familiar with the matter said Aug. 12. The European Union also is conducting its own investigation.

--Editors: Julie Alnwick, Jennifer Sondag

To contact the reporters on this story: Serena Saitto in New York at ssaitto@bloomberg.net; Zachary Mider in New York at zmider1@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net


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