Yahoo Finance What Does the Humana-Aetna Material Adverse Effect Clause Say?
Key Details of the Humana-Aetna Merger for Investors
The Humana-Aetna merger and the MAE clause
The MAE (material adverse effect) clause is one of the first things arbitrageurs look at. In the case of the merger deal between Humana (HUM) and Aetna (AET), the MAE clause lays out the circumstances under which either company can back out of the transaction. Note that some companies will refer to it as a material adverse change clause, but they are more or less the same thing. In fact, arbitrageurs always call it the “MAC clause” regardless of how it is actually characterized in the merger agreement.
The MAE clause, paraphrased
As a general rule, MAE clauses follow a similar format. Pretty much anything that has a material adverse effect on the company will be considered a 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 [Humana] material adverse effect” means a material adverse effect on the financial condition, business or results of operations of the company and its subsidiaries, taken as a whole, provided that no event, change, effect, development or occurrence to the extent resulting from, arising out of, or relating to any of the following shall be deemed to constitute, or shall be taken into account in determining whether there has been, a company material adverse effect, or whether a company material adverse effect 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. So if these carve-outs affect either company in a disproportionate way compared with other managed care companies, then it’s still a MAE.
Other merger arbitrage resources
Other important merger spreads include the Hospira-Pfizer deal. The Hospira (HSP) and Pfizer (PFE) merger is also set to close in 2H15. 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 S&P SPDR Healthcare ETF (XLV).
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