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Backing Out of the Synageva BioPharma Deal, Part 3

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The MAC clause, described

As a general rule, MAC (material adverse change) 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. In the case of the deal between Synageva BioPharma (GEVA) and Alexion Pharmaceuticals (ALXN), the MAC clause lays out the circumstances under which Alexion could back out of its deal with Synageva.

Please note that the MAC clause has been truncated here to limit the legalese, and the author’s comments are in italics. You should still read and understand the actual language in the merger agreement.

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“’Company Material Adverse Effect’ means any fact, change, circumstance, event, occurrence or development that has a material adverse effect on the financial condition, business or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that none of the following shall be taken into account in determining whether there has been, is or would be a Company Material Adverse Effect: (Note—this is the standard MAC language. The carve-outs follow.)

  • any change resulting or arising from the identity of, or any facts or circumstances relating to, Parent, either Merger Sub or any of their respective Affiliates (if your chief scientist leaves because he or she doesn’t want to work for Alexion, it isn’t a MAC)
  • the execution and delivery of this Agreement, the pendency of any litigation alleging breach of fiduciary duty or violation of Law relating to this Agreement or the Offer or the Mergers, any action expressly required to be taken pursuant to or in accordance with this Agreement or taken with the consent, of Parent or either Merger Sub (pretty much self-explanatory—if a shareholder files a suit claiming that Synageva didn’t maximize shareholder value, it isn’t a MAC)
  • any matter set forth specifically in the Company Disclosure Schedule;” (company disclosure schedules are confidential documents that list all the things that are potential risks—arbitrageurs won’t know what’s in these documents)

At the end of the agreement, there’s a disproportionate effect clause. This refers to things like acts of war and natural disasters, which aren’t MACS unless they disproportionately affect Synageva relative to other early-clinical-stage biopharmaceutical companies.

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

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