Series 79 practice questioneasyDeal Protections
A break-up fee in a merger agreement is best described as:
- AA payment from the buyer to the seller for due diligence expenses
- BA fee paid by shareholders to investment advisors
- CA penalty paid by the target if the deal is terminated under specified conditions✓ Correct answer
- DA regulatory filing fee for antitrust clearance
Explanation
Why C — A penalty paid by the target if the deal is terminated under specified conditions
Break-up fees are penalties the target pays if it terminates the deal, usually to accept a better offer. This dissuades frivolous terminations but should not be excessive.
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