The Heartland–Global Payments merger and the MAE clause
Let’s continue where we left off in Part 3 of our series. The MAE (material adverse effect) clause is one of the first things that arbitrageurs look at in a merger agreement. In the case of the Heartland–Global Payments merger, the MAE clause lays out the circumstances where Global Payments (GPN) can back out of its merger with Heartland (HPY).
Paraphrasing the MAE clause
“‘Company Material Adverse Effect‘ shall mean any change, event, fact, effect, condition, development or occurrence that individually or in the aggregate with all other changes, events, facts, effects, conditions, developments or occurrences (A) prevents or materially delays or materially impairs the ability of the Company to consummate the Mergers and the other transactions contemplated by this Agreement or (B) has, or would reasonably be expected to have, a material adverse effect on the financial condition, business, assets or results of operations of the Company and its Subsidiaries, taken as a whole; provided, however, that, in the case of clause (B), in determining whether there has been a Company Material Adverse Effect or whether a Company Material Adverse Effect would occur, any change, event, fact, effect, condition, development or occurrence to the extent attributable to, arising out of, or resulting from any of the following shall be disregarded:”
- general political, economic, business, industry, credit, financial conditions in the United States or internationally, including conditions affecting generally the principal industries in which the Company and its Subsidiaries operate (in other words, a recession would not be a MAE)
- the announcement of this Agreement or the pendency or consummation of the Mergers (in other words, if a major customer of Heartland walked because they didn’t want to deal with Global Payments, it isn’t a MAE)
- pandemics, earthquakes, tornados, hurricanes, floods and acts of God (be careful with the disproportionate effect clause because if an earthquake disproportionately affects Heartland, then that could be considered a MAE)
- acts of war (whether declared or not declared), sabotage, terrorism, military actions or the escalation thereof (similar to the above, watch the disproportionate effect clause)
Merger arbitrage resources
Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL). 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 financial sector could look at the S&P SPDR Financial ETF (XLF).