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

By Elizabeth Fournier

 

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 per cent 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 per cent 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.

 

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:

 

1. 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 per cent

 

Outcome: Completed

 

2. 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 

 

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

 

Outcome: Terminated

 

3. 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 favor 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 unfavorable tax ruling made it too onerous to complete the deal. 

 

Percentage of deal value: 7.7 per cent

 

Outcome: Deal completed

 

4. 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 per cent 

 

Outcome: Completed

 

5. 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 favorable network-sharing agreement. 

 

Percentage of deal value: 7.7 per cent

 

Outcome: Withdrawn after regulatory opposition

 

6. 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 per cent 

 

Outcome: Completed