How Reverse Breakup Fees Can Affect Antitrust Approval

This article for the CLS BlueSky Blog from authors Albert H. Choi & Abraham L. Wickelgren discusses the growing role of reverse breakup fees in merger transactions, illustrated by Warner Bros. Discovery’s 2026 agreement to be acquired by Paramount. Paramount’s inclusion of a $7 billion reverse termination fee—payable if the deal were blocked on antitrust grounds—helped secure the deal over a competing bid from Netflix, reflecting how such provisions are increasingly used to address regulatory uncertainty.

The authors note that reverse breakup fees, while historically less common than target termination fees, have become more prominent in deals facing antitrust scrutiny. Examples include mergers involving JetBlue and Spirit Airlines, as well as The Walt Disney Company and 21st Century Fox. Empirical data suggests that a majority of transactions subject to intensive regulatory review now include such fees, typically amounting to 4–5% of deal value.

The article develops a theoretical framework to examine how reverse breakup fees affect antitrust enforcement. On one hand, these fees can act as a signal that the acquiring firm believes the deal is pro-competitive, since offering such a fee is costly—particularly for deals likely to be blocked. This signaling effect can help regulators distinguish between pro-competitive and anti-competitive transactions when combined with independent investigation.

On the other hand, large reverse breakup fees may incentivize acquirers to invest heavily in litigation to avoid regulatory blockage, raising enforcement costs and potentially weakening regulators’ ability to challenge harmful deals. The authors find that these competing effects create a trade-off: reverse breakup fees may be beneficial when kept at moderate levels that preserve their signaling value, but excessive fees can undermine enforcement by strengthening firms’ incentives to resist regulatory intervention…

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