Mergers and acquisition term. It refers to an agreed amount that a putative-target in an agreed but incomplete transaction must pay the putative-acquirer in the event that the target calls off the merger (usually with the exception of deal-cancellation because of a material adverse change), for example because of a more attractive offer from another company.
Break-fees are usually only permissible to the extent that they maximize the value of the potential transaction to the target’s shareholders. However, too high a break fee may be regarded as contrary to shareholder interests; under Delaware law in particular, too high a break fee may violate the target management’s Revlon duties. Break-up/Break fees may also be requested in entering discussions so as to cover expenses (legal, accounting and professional) from a negotiation on an unconsummated deal, especially where a party has pulled out of earlier negotiations without warning.