It’s not uncommon for private equity firms to offer takeover candidates a break-up fee to walk away. But these fees are rising with the continued financial instability. And higher fees could put the breaks on dealmaking.
Private equity firm Cerberus is now offering equipment rental company United Rentals (URI) $100 million to walk away from their proposed deal. With the deal in shambles, URI stock has taken a beating, and it’s not the only one.
Sallie Mae (SLM) and Home Depot (HD) both found themselves in similar situations, Karen Finerman said. Since the credit crunch has injected so much volatility and uncertainty into the market, LBO buyers now have to agree to much more expensive fees, which act essentially as exit clauses to get out of the takeover if they deem it necessary.
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Trader disclosure: On Nov. 19, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders: Finerman's Firm Owns S&P 500 Options, Finerman's Firm Owns Russell 2000 Puts, Finerman's Firm Is Short (IWM), Finerman's Firm Is Short (MDY), Finerman's Firm Is Short (SPY), Finerman's Firm Is Short (IJR), Finerman's Firm Is Short (IYR), Finerman's Firm Owns (BIIB) Options, Finerman's Firm And Finerman Own (GS), Finerman's Firm Owns (HD) And (HD) Puts, Finerman Owns (HD), Finerman's Firm Owns (KSS), Finerman's Firm Is Short (LEH) And Owns (LEH) Puts, Finerman's Firm Is Short (LEN), Finerman's Firm Owns (LTD), Finerman's Firm Owns (MSFT) Options, Finerman's Firm Owns (TWX), Finerman's Firm Owns (YHOO), Finerman's Firm Owns (WMT), Finerman's Firm Owns (NDAQ), Finerman's Firm Owns (NYX), Finerman's Firm Owns (NMX) Options, Finerman's Firm Owns (BEAS) Options, Macke Owns (DIS), Macke Owns (YHOO), Najarian Owns (AMTD) Options, Najarian Owns (CSCO) Options, Najarian Owns (YHOO) Options, Najarian Owns (GOOG) Options
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