Reverse Breakup Fees and Antitrust Approval

Authors

Albert H. Choi, University of Michigan Law School; European Corporate Governance Institute (ECGI)Follow
Abraham L. Wickelgren, University of Texas at Austin - School of Law; University of Texas at Austin - Center for Law, Business, and EconomicsFollow

Abstract

The paper examines the antitrust implications of use of reverse breakup (termination) fees in mergers. By promising to pay a reverse breakup fee to the target if the proposed merger does not get the necessary antitrust approval, the acquirer can signal to the antitrust authority that the merger is more likely to be pro-competitive. A large reverse breakup fee can also function as a commitment device by the acquirer to spend more resources in case the merger is challenged by the antitrust authority. While the first, signaling function is efficiency enhancing, the second, commitment function can lead to an efficiency loss. The paper examines the various conditions under which a reverse breakup fee can serve these two functions and also derives welfare and policy implications.

Disciplines

Antitrust and Trade Regulation | Commercial Law | Contracts | Law and Economics

Date of this Version

3-10-2026

Working Paper Citation

Choi, Albert H. and Wickelgren, Abraham L., "Reverse Breakup Fees and Antitrust Approval" (2026). Law & Economics Working Papers. 313.
https://repository.law.umich.edu/law_econ_current/313