MAC Clause: How Can Danaher Walk Away?



How can Danaher walk away?

As we discussed in the last part, the MAC clause has been paraphrased here to limit the legalese. Also, the author’s comments are in italics. You should still read and understand the actual language in the merger agreement. This part lays out the circumstances under which Danaher (DHR) can walk away from its deal with Pall (PLL).

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Specific circumstances

The “Company Material Adverse Effect” means any event, circumstance, change or effect that, individually or in the aggregate with any other event, circumstance, change or effect, (a) has had, or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the business, financial condition or results of operations of the Company and the Company Subsidiaries, taken as a whole provided, however, that, in no event shall any of the following, alone or in combination, be deemed to constitute, nor shall any of the following be taken into account in determining whether there has been, a Company Material Adverse Effect. Note—this is the standard MAC language. The carve-outs follow in the next parts of this series.

  • a change in general economic, political, regulatory, business, economic, financial, credit or capital market conditions, or any changes therein, including interest or exchange rates—in other words, a strong dollar isn’t a MAC.
  • a change in the industries, or in the business conditions in the geographic regions, in which the Company and the Company Subsidiaries operate—in other words, a recession in the US isn’t a MAC.
  • any change in accounting requirements or principles required by GAAP (generally accepted accounting principles)—self-explanatory
  • any adoption, implementation, promulgation, repeal, modification, reinterpretation or proposal of any Law after the date hereof—think of something that might affect their customers. For example, the government changes the tax treatment of R&D (research and development) expenses. This would depress demand for testing consumables.
  • any liability arising out of any Action disclosed on the Company Disclosure Schedule to the extent such liability is reasonably foreseeable from such disclosure—you’ll never see what’s in the Company Disclosure Schedule because it’s confidential.

Other merger arbitrage resources

Other important merger spreads include the Synageva (GEVA)-Alexion (ALXN) transaction. 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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