Court Of Chancery Clarifies Termination Fee Calculation
A termination fee must be reasonable. That is well known. But how to calculate the fee to test its reasonableness is sometimes misunderstood. This decision explains how to do so.
The preferred approach is to calculate the fee based on the equity value of the transaction. That is the amount needed to buy the equity, usually market value. Normally, the equity value is less than the enterprise value that includes the equity value and the value of the debt, less cash.