Parsing the Chubb–ACE MAE Clause, Part 2



Material Adverse Effect clause

Continued from Part 3, the Material Adverse Effect clause discusses the events that can terminate the deal between Chubb (CB) and ACE Ltd. (ACE)

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The MAE clause, paraphrased

As a general rule, MAE clauses follow a similar format. Pretty much anything that has a material adverse effect on the company will be considered a MAE, but there are exceptions to that rule.

Please note that the MAE clause has been paraphrased here to limit the legalese. You should still read and understand the actual language in the merger agreement.

“Company [Chubb] material adverse effect” means a material adverse effect on (i) the business, properties, assets, liabilities, results of operations or financial condition of such party and its Subsidiaries taken as a whole (provided, however, that, with respect to this clause (i), Material Adverse Effect shall not be deemed to include the impact of…)

This is standard MAE language. The carve-outs follow. Comments will follow the carve-outs in parentheses.

  • changes in US generally accepted accounting principles (or GAAP) or SAP prescribed by the applicable insurance regulatory authority, including accounting and financial reporting pronouncements (ACE cannot back out of the deal by claiming that a change in accounting policy ruined the commercial logic of the transaction.)
  • changes, after the date hereof, in laws, rules or regulations of general applicability to companies in the industries in which such party and its Subsidiaries operate, or interpretations thereof by courts or Governmental Entities (Similar to the above, regulatory changes that affect everyone are not a valid excuse to terminate the deal.)
  • changes, after the date hereof, in global, national, regional or local political conditions (including the outbreak of war or acts of terrorism) or in economic or market conditions (A recession or an earthquake are not a MAC, although note the disproportionate effect clause.)

Merger arbitrage resources

Other important merger spreads include the merger between Freescale Semiconductor (FSL) and NXP Semiconductor (NXPI) or the deal between Baker Hughes (BHI) and Halliburton (HAL). For more information on risk arbitrage investing, refer to Merger arbitrage must-knows: A key guide for investors.

Investors who would like broad exposure while trading in the financial sector can explore the S&P SPDR Financial ETF (XLF).


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