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Time Warner Cable and Charter Merger: What Could Stop the Deal?


Dec. 4 2020, Updated 10:53 a.m. ET

Time Warner Cable-Charter 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 Time Warner Cable (TWC) and Charter Communications (CHTR), the MAC clause lays out the circumstances under which Charter can back out of its deal with Time Warner Cable. Let’s take a look at the specific conditions that could stop this deal.

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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 a material adverse effect on (i) the condition—financial or otherwise, business, assets, or results of operations of the Company and its Subsidiaries, taken as a whole, or (ii) the Company’s ability to consummate the transactions contemplated by this Agreement. Note that this is the standard MAC language. The carve-outs follow.

In this case, note that there’s a disproportionate effect clause. So, if these carve-outs impact Time Warner Cable in a disproportionate way relative to other cable TV companies, then it’s still a MAC.

Other merger arbitrage resources

For other important merger spreads, please refer to our Merger Arbitrage page. 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 tech sector should look at the S&P SPDR Tech ETF (XLK).


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