The Heartland–Global Payments merger and the MAE clause
Let’s continue our discussion from Part 4 of the 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 the merger with Heartland (HPY).
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:”
- any change in applicable Law or GAAP[1. This means generally accepted accounting principles] (or authoritative interpretation or enforcement thereof) which is proposed, approved or enacted on or after the date hereof (if accounting rules changed and that caused a profit to become a loss, it isn’t a MAE)
- the failure, in and of itself, of the Company to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics (it being understood that the underlying facts giving rise or contributing to such failure or change may be taken into account) (missing your quarter isn’t a MAE in of itself, however, the reason why you missed it is fair game)
- the taking of any action expressly required by this Agreement (this is self-explanatory)
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).