The Freescale–NXP merger and the MAC clause
The MAC (material adverse change) clause is one of the first things that arbitrageurs look at. In the case of the deal between Freescale Semiconductor (FSL) and NXP Semiconductors (NXPI), the MAC clause lays out the circumstances under which NXP can back out of its deal with Freescale. Let’s take a look at the specific conditions that could stop this deal.
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 are exceptions to that rule.
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.
A Company Material Adverse Effect means any event, circumstance, change, occurrence, development, or effect that has a material adverse change in, or material adverse effect on, (a) the business, assets, financial condition, or results of operations of the Company and its Subsidiaries, taken as a whole, or (b) the ability of the Company to consummate the transactions contemplated hereby before the Termination Date; provided, however, that for purposes of clause (a) a “Company Material Adverse Effect” shall not include any event, circumstance, change, occurrence, development, or effect resulting from or arising in connection with: (Note: this is the standard MAC language. The carve-outs follow.)
In this case, note that there is a disproportionate effect clause. So if these carve-outs affect Freescale in a disproportionate way compared to other semiconductor companies operating in the same geographic area, then it’s still a MAC.
Other merger arbitrage resources
Other important merger spreads include the Hospira–Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is also set to close in 2H15. 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 semiconductor sector should look at the VanEck Vectors Semiconductor ETF (SMH).