The Cameron-Schlumberger 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 Cameron (CAM) and Schlumberger (SLB), the MAE clause lays out the circumstances under which Schlumberger can back out of its deal with Cameron.
Note that some companies refer to it as a material adverse change, or MAC, clause, but it’s 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.
The MAE clause, paraphrased
As a general rule, MAE clauses follow a similar format. Just about anything that has a material adverse effect on the company is 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’” with respect to any person shall mean (i) a material adverse effect on or material adverse change in the business, assets, liabilities, financial condition or results of operations of such person and its Subsidiaries, taken as a whole, other than any effect or change relating to or resulting from [exceptions follow]…or (ii) a material adverse effect on or material adverse change in the ability of the person to perform its obligations under this Agreement or to consummate the Merger and the other transactions contemplated by this Agreement.”
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 addressing carve-outs that affect either company in a disproportionate way compared to “other similarly situated entities.”