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

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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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