The Amsurg-Envision Material Adverse Effect Clause: Part 2



The MAE clause, paraphrased, with carve-outs

In this part of the series, we’ll look at the MAE (material adverse effect) clause of the Amsurg (AMSG) merger agreement with Envision Healthcare (EVHC) and how Amsurg could back out of the deal.

As a general rule, all MAE clauses follow a uniform format. Pretty much anything that has a material adverse effect on the company will be considered an MAE, although there are exceptions to that rule.

Please note that I have paraphrased the MAE clause below to limit the legalese. You should still read and understand the actual language in the merger agreement. The paraphrased carve-outs follow, with my comments in italics.

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Holdings Material Adverse Effect” means any change, event, development, condition, occurrence, or effect that is, or would reasonably be expected to be, materially adverse to the business, condition (financial or otherwise), assets, liabilities, or results of operations of Holdings and its subsidiaries, taken as a whole; provided, however, that none of the following shall be deemed in and of themselves, either alone or in combination, to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Holdings Material Adverse Effect.

  • any changes resulting from general market, economic, financial, capital markets, or political or regulatory conditions (In other words, if the stock market crashes, or we have another financial crisis, it wouldn’t be considered an MAE.)
  • any changes or proposed changes of law or GAAP (generally accepted accounting principles) (In other words, if the Financial Accounting Standards Board implemented a new treatment of deferred revenue that caused Envision to show a loss for last year, that wouldn’t be considered an MAE.)
  • any changes resulting from any act of terrorism, war, national, or international calamity (A war in the Middle East wouldn’t be considered an MAE; however, a terrorist attack that hit one of Envision’s facilities would be considered an MAE due to the disproportionate effect clause.)
  • any changes generally affecting the industries in which Holdings and its Subsidiaries conduct their businesses (If Congress passed a law capping Medicare payouts to providers, that would not be considered an MAE.)
  • any changes resulting from the execution of this Agreement or the announcement or the pendency of the mergers, including any loss of employees or customers, any cancellation of or delay in customer orders or any disruption in or termination of customer, supplier, distributor, or similar business relationships or partnerships resulting from the transactions (If a major customer left because it didn’t want to deal with Amsurg, that wouldn’t be considered an MAE.)

Other merger arbitrage resources

Other important merger spreads include the Cigna- (CI) Anthem (ANTM) deal. It’s slated to close in the second half of 2016. 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 healthcare sector should look at the Health Care Select Sector SPDR ETF (XLV).


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