RIP MAC

23 January 2013 By Reynolds Holding Follow @holdingren

Exceptions have all but neutered material adverse change clauses. That’s why some recent transactions like Freeport-McMoRan’s purchase of Plains Exploration spell out specifically when a buyer can bail. Change may not come easily to dealmakers, but they should welcome clarity.

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A new American Bar Association study found that virtually all 2011 merger agreements between U.S. publicly traded companies allowed buyers to terminate the deal if there was a material adverse change in the seller’s situation before closing.
Almost all of these so-called MAC clauses excluded changes attributable to the economy, new legislation or accounting rules, terrorism or other factors beyond the seller’s control, according to the study. But many of them also carved out changes resulting from consummation of the transaction or how the seller ran its business.

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