Google’s acquisition of Motorola rumored to have a reverse breakup fee of $2.5 billion

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According to a source close to the situation, Google has agreed to pay Motorola a fee as large as $2.5 billion if its acquisition of the mobile phone manufacturer fails to go through. This fee is around six times as large as the fee typically paid in such situations. The person, who stayed anonymous as the details of the deal haven’t yet been made public, said that Google has agreed to pay this reverse breakup fee to Motorola only under certain specific circumstances.

The internet search giant had earlier yesterday agreed to buy the cell phone manufacturer for a deal said to be worth $12.5 billion. In terms of the percentage, the fee Google has agreed for is almost three times that of the $3 billion which AT&T Inc. has offered T-Mobile USA under a similar agreement in its bid to buy the Deutsche Telekom owned US wireless carrier worth $39 billion. Both Google and AT&T are being targeted by critics of their respective acquisition bids as they are being accused of trying to stifle competition in the internet and telecommunications industries.

A senior lecturer from the Columbia Business School who was also formerly a lawyer and a banker, Donna Hitscherich, said that the astoundingly high fee for reverse breakup reflects how confident the buyers are in completing the deal. She added that the parties go into agreements to get them through, not to aim for the reverse breakup fees. The fee which Google has agreed for makes up about 26% of the total enterprise value of the transaction, its value being more than six times that of the 3.8% median seen in around 200 deals which have been completed since January last year.

A spokeswomanfor Motorola, Jennifer Erickson, did not issue any comment on the issue, neither did the Google spokesman, Aaron Zamost. The Libertyville, Illinois based Motorola Mobility has agreed to pay Google $375 million if the company subsequently decides not to sell to Google, said the source.

A law professor at New Orleans based Tulane University Law School, Elizabeth Nowicki, said that in most of the typical deals, both the buyer and the seller usually agree to pay similar identical fees in case of a breakup. Google is also undergoing various investigations both in the US and overseas, for the impact it will have on market competition.

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