There’s an interesting detail in the press release announcing Standard General’s $5.4 billion acquisition of TEGNA – it turns out that the buyer has agreed to pay a “ticking fee” if the closing is delayed:
Under the terms of the definitive merger agreement, in addition to receiving $24.00 per share, TEGNA shareholders will receive additional cash consideration in the form of a “ticking fee” of $0.00167 per share per day (or $0.05 per month) if the closing occurs between the 9- and 12-month anniversary of signing, increasing to $0.0025 per share per day (or $0.075 per month) if the closing occurs between the 12- and 13-month anniversary of signing, $0.00333 per share per day (or $0.10 per month) if the closing occurs between the 13- and 14-month anniversary of signing, and $0.00417 per share per day (or $0.125 per month) if the closing occurs between the 14- and 15-month anniversary of signing.
(H/T to Grace Maral Burnett)
Ticking fees are by no means unheard of as a way to allocate the risks associated with antitrust regulatory approvals, but they haven’t been a popular option in the past. However, as antitrust regulators increase their scrutiny of potential deals, it’s possible that other dealmakers might consider ticking fees as part of their efforts to allocate regulatory risk.
But if you’re considering the possibility of a ticking fee, keep in mind that there are reasons why this mechanism has only rarely been used. You should take a look at this Paul Hastings memo, which provides an overview of the positives and negatives of ticking fees. This excerpt highlights one potentially big negative from a buyer’s perspective:
Once a transaction is announced, a potential interloper with perceived low regulatory risk may view a ticking fee as a signal that the parties have serious regulatory concerns. The existence of the ticking fee could therefore potentially act as inducement for an interloper to try to disrupt the transaction.
– John Jenkins