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Parsing the WhiteWave Material Adverse Effect Clause


Jul. 13 2016, Published 2:29 p.m. ET

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 WhiteWave (WWAV) merger agreement and see under which circumstance the buyer (Danone) can walk away from 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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“Company Material Adverse Effect” means any fact, change, circumstance, event, occurrence, condition, development (a) that is materially adverse to the business, results of operations or financial condition of the Company and its Subsidiaries,  provided, that for purposes of clause (a), Company Material Adverse Effect shall not be deemed to include the impact of:”

  • changes after the date hereof in GAAP (In other words, if the Financial Accounting Standards Board changes the treatment of deferred taxes, which causes WhiteWave to show a loss, then it isn’t an MAE.)
  • changes after the date hereof in Laws affecting companies in the industries in which the Company and its Subsidiaries operate (If Congress passes stringent new labeling rules for organic foods that impose additional costs on WhiteWave, it isn’t an MAE.)
  • changes after the date hereof in global, national or regional political conditions (including the outbreak of war or acts of terrorism), in the global financial markets, or in general economic conditions affecting companies in the industries in which the Company operates (A war or a recession wouldn’t be considered an MAE. Note that terrorism could be considered an MAE if it affects WhiteWave disproportionately compared to everyone else in the industry.)


Investors who are interested in trading the consumer discretionary sector should look at the Vanguard Consumer Discretionary ETF (VCR).


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