5.8 Fresenius, a German manufacturer of dialysis equipment, acquired APP Pharmaceuticals for $4.6 billion. The deal includes

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5.8 Fresenius, a German manufacturer of dialysis equipment, acquired APP Pharmaceuticals for $4.6 billion. The deal includes an earnout, under which Fresenius would pay as much as $970 million if APP reaches certain future financial targets. What is the purpose of the earnout? How does it affect the buyer and the seller?

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