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Parsing the Salix–Valeant merger MAC clause: Part 2


Nov. 20 2020, Updated 2:32 p.m. ET

The MAC clause, paraphrased

As a general rule, MAC clauses follow a similar format. Pretty much anything that has a material adverse effect on the company will be considered a MAC, but there will be exceptions to that rule. These are the ways the Salix–Valeant merger can break.

Please note that the MAC clause has been paraphrased here to limit the legalese, with added comments in italics. You should still read and understand the actual language in the merger agreement.

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A Company Material Adverse Effect means a material adverse effect on the business, properties, assets, liabilities, financial condition, or results of operations of the Company and the Company Subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed, either alone or in combination, to constitute, and that none of the following shall be taken into account in determining whether there has been or will be, a Company Material Adverse Effect:  (Note: this is the standard MAC language. The carve-outs follow.)

Note that there is a disproportionate effect clause: If these carve-outs affect Salix (SLXP) in a disproportionate way compared to other pharma companies, then it is still a MAC and Valeant (VRX) can back out of the deal.

  • any change arising from any action expressly required to be taken or not taken in accordance with the terms of this Agreement, or action taken, or failure to act, to which Parent has consented in writing (Self explanatory)
  •  acts of war, any hurricane, earthquake, flood, or other natural disasters or acts of God (If a hurricane takes out Salix’s corporate headquarters, it could still be a MAC because of the disproportionate effect clause.)
  • changes or prospective changes in Laws, changes or prospective changes in GAAP, general conditions in the industries in which the Company and the Company Subsidiaries operate (Self explanatory)
  •  any failure by the Company to meet any published or internally prepared estimates of revenues, earnings, or other economic performance for any period ending on or after the date of this Agreement and prior to the Acceptance Time (If Salix misses its quarter, that isn’t necessarily a MAC, although the reason for the miss is fair game.)

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 healthcare sector should look at the Health Care Select Sector SPDR Fund (XLV).


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