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Lilly, Loxo Oncology set $265M termination fee for $8B deal

Eli Lilly and Co. and Loxo Oncology Inc. have agreed to a termination fee of $265 million in connection with their $8 billion deal in case the agreement is not closed.

Under the transaction, Lilly will begin a tender offer to acquire all of Loxo's outstanding shares at $235 apiece. The Indianapolis-based company will purchase any Loxo shares that are not tendered through a second-step merger at the same price.

The agreement provides each company with termination rights in case the deal is not closed by July 5. At the time of announcing the transaction, the companies said they expected to close the deal in the first quarter of 2019.

For example, the payment of the termination fee will be triggered if Stamford, Conn.-based Loxo finds a better deal.

A termination fee is a typical clause in an acquisition agreement, and multibillion-dollar deals typically demand a higher penalty. The fees provide some security that both sides will follow through with the deal.