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Parsing the Cigna-Anthem Material Adverse Effect Clause: Part 1

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The Cigna-Anthem merger and the MAE clause

The MAE (material adverse effect) clause is one of the first things arbitrageurs look at in a merger agreement. In the case of the merger deal between Cigna (CI) and Anthem (ANTM), the MAE clause lays out the circumstances under which either company can back out of the transaction.

Note that some companies refer to it as a material adverse change (or MAC) clause, but they’re more or less the same thing. In fact, arbitrageurs always call it the MAC clause regardless of how it’s actually characterized in the merger agreement.

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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 an 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.

Material Adverse Effect means, with respect to any Person, any event, change, effect, development, or occurrence that has a material adverse effect on the business, results of operations or financial condition of such Person and its Subsidiaries, taken as a whole; provided, however, that no event, change, effect, development or occurrence shall be deemed to constitute, nor shall any of the foregoing be taken into account in determining whether there has been, a Material Adverse Effect, to the extent that such event, change, effect, development, or occurrence results from or arises out of.

This is standard MAE language. The carve-outs follow in the next part of this series.

In this case, there’s a disproportionate effect clause. So if these carve-outs affect either company in a disproportionate way compared to other managed care companies, then it’s still an MAE.

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