February 24, 2010
Limits on Termination Fees
While Delaware does not take a brightline rule approach to limiting the size of termination fees, other do. Last week, I referred to a paper from John Coates comparing Delaware's standards with respect to termination fees with the UK's rule-based approach. Well, last week, the Takeovers Panel in Australia, the Takeover Panel's cousin down under adopted new guidance on termination fees (break fees), limiting their size in most circumstances to no more than 1% of equity value of a transaction.
In its guidance on lock-up devices, the Panel also warned against the potentially anti-competitive effect of what they call no-due-diligence obligations, particularly those that provide initial bidders with information rights in the event a second bidder happens along. I blogged about the potentially anti-competitive effects of this kind of weak-form rights of first refusal before. Delaware, however, is clearly okay with them (see Toys R Us).
One supposes that the announcement of a brightline rule with respect to termination fees in Australia provides a nice opportunity for a natural experiment.
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