The AGL Resources–Southern Company 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 AGL Resources (GAS) and The Southern Company (SO), the MAE clause lays out the circumstances under which Southern can back out of its deal with AGL Resources.
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.
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 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.
“’Company Material Adverse Effect’ means any fact, occurrence, change, effect, or circumstance, individually or in the aggregate with all other facts, occurrences, changes, effects, and circumstances that (a) has had, or would reasonably be expected to result in, a material adverse effect on the business, assets, liabilities, properties, or results of operations or financial condition of the Company and the Company Subsidiaries, taken as a whole, or (b) would, or would reasonably be expected to, prevent or materially impair or delay the ability of the Company to perform its obligations under this Agreement or consummate the Transactions; except that with respect to clause (a), in no event will any of the following, either alone or in combination, constitute a ‘Company Material Adverse Effect’ or be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur.”
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 that addresses carve-outs that affect either company in a disproportionate way compared to other companies in the industry.