Netflix's $5.8 billion breakup fee for Warner among largest ever

Netflix Inc.’s $72 billion acquisition of Warner Bros. Discovery Inc. includes one of the biggest breakup fees of all time — a $5.8 billion penalty that Netflix has agreed to pay its target if the deal falls apart or fails to win regulatory approval.

At 8% of the deal’s equity value, the fee is well above the average even in big-ticket dealmaking, signalling Netflix executives’ confidence they can convince global antitrust watchdogs to let the transaction go ahead. The average breakup fee in 2024 was equal to about 2.4% of the total transaction value, according to a report from Houlihan Lokey.

Netflix’s multibillion-dollar pledge is also a sign of how heated the bidding war got for control of the iconic Hollywood studio. As part of a sweetened proposal earlier this week, rival suitor Paramount Skydance Corp. had more than doubled the proposed breakup fee in its offer to $5 billion.

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Warner Bros., meanwhile, would have to pay a $2.8 billion reverse breakup fee if its shareholders vote down the deal. If Warner Bros. were to accept a rival offer, the new buyer, in effect, would be on the hook for that fee.

Here are some of the biggest breakup fees in M&A history, according to data compiled by Bloomberg:

AOL/Time Warner Inc.

Deal value: $160 billion

America Online Inc. agreed to pay a fee of about $5.4 billion if it backed out of its agreement to buy Time Warner Inc. Time Warner would pay about $3.9 billion if it broke up the transaction under certain conditions.

Percentage of deal value: 3.4%

Outcome: Completed

Pfizer/Allergan

Deal value: $160 billion

The breakup fee could have been as high as $3.5 billion, but the merger had a contingency that it would be lower if there were changes to tax law. Pfizer ended up paying just $150 million after the US cracked down on corporate tax inversions

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Percentage of deal value: 2.2% (but paid less than 0.1%)

Outcome: Terminated

Verizon/Verizon Wireless

Deal Value: $130 billion

Breakup Fee: This deal for Vodafone’s stake in Verizon Wireless was complicated. Verizon promised to pay a breakup fee to Vodafone of $10 billion if it couldn’t get financing for the deal, or $4.64 billion if its board changed its recommendation to shareholders to vote in favour of the transaction.

Meanwhile, Vodafone would have owed $1.55 billion to Verizon if its board changed its mind, and either side would have had to pay $1.55 billion to the other if shareholders turned down the transaction. Vodafone also would have had to pay that $1.55 billion if an unfavourable tax ruling made it too onerous to complete the deal.

Percentage of deal value: 7.7%

Outcome: Deal completed

AB InBev/SAB Miller

Deal value: $103 billion

Breakup fee: AB InBev agreed to pay a breakup fee of $3 billion if it failed to get approval from regulators or shareholders and instead walked away from what was then the biggest corporate takeover in UK history.

Percentage of deal value: 2.9%

Outcome: Completed

AT&T/T-Mobile USA

Deal Value: $39 billion

Breakup fee: AT&T agreed to pay Deutsche Telekom a $3 billion breakup fee in cash, as well as transferring radio spectrum to T-Mobile and striking a more favourable network-sharing agreement.

Percentage of deal value: 7.7%

Outcome: Withdrawn after regulatory opposition

Google/Wiz

Deal value: $32 billion

The companies agreed that Google would pay a breakup fee of about $3.2 billion — a huge chunk of the transaction value — if the deal didn’t close.

Percentage of deal value: 10%

Outcome: Completed

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