{"id":313676,"date":"2011-03-16T10:53:47","date_gmt":"2011-03-16T10:53:47","guid":{"rendered":"http:\/\/www.ghanamma.net\/2011\/03\/16\/berkshires-biggest-breakup-fees\/"},"modified":"2011-03-16T10:53:47","modified_gmt":"2011-03-16T10:53:47","slug":"berkshires-biggest-breakup-fees","status":"publish","type":"post","link":"https:\/\/www.ghanamma.com\/2011\/03\/16\/berkshires-biggest-breakup-fees\/","title":{"rendered":"Berkshire’s biggest breakup fees"},"content":{"rendered":"
\n

Warren Buffett’s company could walk away richer even if\u00a0the self-proclaimed elephant gunner<\/a> doesn’t bag\u00a0his latest target.<\/strong><\/p>\n

Lubrizol (LZ<\/a>), the Wickliffe, Ohio, industrial lubricants company<\/a> that agreed Monday to sell itself<\/a> to Berkshire Hathaway (BRKA<\/a>)\u00a0for $9 billion, said in a securities filing<\/a> Tuesday that it would pay Berkshire a $200 million termination fee if it breaks up the merger for a rival bid.<\/p>\n

\"\"<\/a><\/p>\n

When breaking up is easy to do<\/p>\n<\/div>\n

The breakup fee amounts to 2.2% of the equity Berkshire is acquiring \u2013 which is toward the low end of the 2%-3% range for termination fees<\/a> that often prevail in M&A deals, though it is not unusual for Berkshire.<\/p>\n

The biggest fee a Berkshire buyout target agreed to was the $400 million<\/a> that insurer General Re signed up for in the spring of 1998. That fee was actually lower than the Lubrizol fee as a percentage of the deal size, at 1.8% of the $22 billion total. The deal closed that December.<\/p>\n

Berkshire would have gotten a $264 million fee<\/a> had its $26 billion takeover of Burlington Northern been scotched by a rival buyout. That fee, at 1% of equity value, was low partly because no other bidders were on the horizon and partly because Berkshire already owned nearly a quarter of Burlington. That deal closed in February 2010.<\/p>\n

One of Buffett’s more profitable deals<\/a> in recent years was one he didn’t complete.<\/p>\n

Berkshire signed up for a $175 million breakup fee<\/a> when it agreed to bail out Constellation Energy during the financial crisis. That $4.7 billion deal was struck at a huge premium to Constellation’s recent trading price, which made it easy for the power company to find a rival buyer who could afford to pay the fee as well as a superior buyout price.<\/p>\n

That was no doubt just as well, as far as Berkshire was concerned. It ended up clearing $1.1 billion on the deal that never was, combining the breakup fee and a $917 million investment gain it made on the deal. Not bad work if you can get it.<\/p>\n

Also on Fortune.com:<\/strong><\/p>\n

<\/span><\/span><\/span><\/div>\n<\/p>\n

<\/p>\n

See original here:
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Warren Buffett’s company could walk away richer even if\u00a0the self-proclaimed elephant gunner doesn’t bag\u00a0his latest target. 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