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More on the Baker Hughes and Halliburton merger MAC clause

Brent Nyitray, CFA, MBA - Author

Aug. 18 2020, Updated 4:43 a.m. ET

The MAC clause in the Baker Hughes and Halliburton merger agreement

In order to limit the legalese, I am paraphrasing the MAC (or material adverse change) clause. Added comments are in italics. You should read the actual clause in the merger agreement along with the previous article in this series.

Certain representations and warranties of Halliburton (HAL) and Baker Hughes (BHI) are qualified as to materiality or as to “material adverse effect,” which when used with respect to Halliburton and Baker Hughes means, as the case may be, any fact, circumstance, occurrence, or event that is materially adverse to the business or financial condition of such party, except that any such fact, circumstance, occurrence, or event shall not be considered in determining whether a material adverse effect has occurred to the extent that it results from any of the following (provided that they do not disproportionately affect either company relative to other companies in the oil services sector):

1) a change in law, United States GAAP (or generally accepted accounting principles), or interpretations thereof. In other words, if the EPA were to ban fracking, that wouldn’t be a MAC.

2) general economic, market, oilfield services industry, or political conditions (including acts of terrorism, war, or other force majeure). An economic collapse is not a MAC. However, if a country were to nationalize one company’s assets, that would be a MAC.

3) any change in the stock price, trading volume, or credit rating of such a party (unless due to a circumstance which would separately constitute a material adverse effect). A crash in Baker Hughes or Halliburton stock is not a MAC in and of itself, but the reason for the collapse is fair game.

4) the announcement or pendency of the merger agreement, any actions taken in compliance with the merger agreement, or the consummation of the merger. If a major customer were to leave because it didn’t want to deal with the other company, that wouldn’t be a MAC.

5) acts of God, earthquakes, weather-related evenst, illness outbreaks, other public health events, or any similar catastrophes. A flu pandemic isn’t a MAC, but an earthquake that takes out one of either company’s rigs would be.

6) the failure of such a party to meet internal or analysts’ expectations, projections, or budgets (unless due to a circumstance which would separately constitute a material adverse effect). Missing your quarter isn’t a MAC in and of itself, but the reason for the miss may well be. 

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Other merger arbitrage resources

Other important merger spreads include the deal between Hospira (HSP) and Pfizer (PFE). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.

Investors who are interested in trading in the energy sector should look at the Energy Select SPDR ETF (XLE).


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