We were looking at the data yesterday when we came across an interesting nugget inside the footnote disclosure of AT&T regarding its potential merger with Time Warner.
The footnote explains that if the merger were terminated, AT&T would be obligated to pay a fee of $500 million, equivalent to $0.63 a share. Pretty interesting stuff, so naturally we deciced to dive a little deeper.
We wanted to know whether examples of past merger termination fees could give us better understanding of the effects of such, based on previous models.So we took to the XBRL Raw Data Query (explained in this recent blog post) and dove in.
The $500 million breakage fee had been tagged as “LossOnContractTermination.” This is not a common tag, so spotting a few use cases was easy. We took notice of an Aetna and Humana merger with a reported termination fee where Aetna paid Humana $1 billion (contractual), $947 million (net).
This is what that looks like on Humana’s income statement:
As you can see, an additional $947 million had the effect of increasing operating income. By our rough calculations, that was a one-time boost of $6.40 to earnings per share.
We found another case between Staples and Office Depot. The termination fee paid to Office Depot was $250 million.
Here’s what that looks like on Staple’s income statement:
This termination fee was paid in the fiscal second quarter of 2016. Its effect was $0.39 per share. This amount is slightly harder to characterize because Staples recorded a loss in fiscal 2016.
Our blog post from Nov. 8 points to an increase in the amount of cash on the balance sheets and on Oct. 23, we showed you that mergers and acquisitions have only increased over the last five years. With cash levels increasing and mergers on the rise, we will also expect termination fees to become more prominent in the immediate future.
To understand the true impact of a merger (or in this case, the lack thereof) you’ll have to look on a case-by-case basis. The good thing is that we offer the tools to do just that. With Calcbench you can enter a rabbit hole without fear of getting lost. We’ve got your back and the data. So, dive into the footnotes with the help of our XBRL Raw Data Query and enjoy the search!
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