A Deeper Dive into the iGATE-Capgemini Merger (Part 4 of 6)
The iGATE-Capgemini merger and the MAC clause
The MAC (material adverse change) clause in a merger agreement is one of the first things arbitrageurs look at. In the iGATE-Capgemini merger, the MAC clause lays out the circumstances under which Capgemini can back out of its deal with iGATE (IGTE).
Let’s take a look at the specific conditions that could stop this deal.
The MAC clause, paraphrased
As a general rule, MAC clauses follow a similar format. Nearly anything that has a material adverse effect on the company will be considered a MAC, but there are exceptions to that rule.
Please note that the following MAC clause has been paraphrased here to limit the legalese. You should still read and understand the actual language in the merger agreement.
A Company Material Adverse Effect means any change, event, effect, or occurrence that (i) has a material adverse effect on the business, assets, financial condition, or results of operations of the Company and the Company Subsidiaries, taken as a whole, or (ii) prevents or materially delays the consummation of the Merger and the other Transactions or the ability of the Company to perform its obligations under this Agreement in any material respect; provided that none of the following shall be deemed either alone or in combination to constitute, and none of the following shall be taken into account in determining whether there has been a Company Material Adverse Effect.
This is standard MAC language. The carveouts follow in the next two parts of this series. There’s a disproportionate effect clause, which means that any of these carveouts cannot have a disproportionate effect on iGATE relative to other companies in the IT (information technology) consulting sector.
Merger arbitrage resources
Other important merger spreads include the deal between Baker Hughes (BHI) and Halliburton (HAL) and the merger between Pharmacyclics (PCYC) and AbbVie (ABBV). For a primer on risk arbitrage investing, read Merger arbitrage must-knows: A key guide for investors.
Investors interested in trading in the tech sector should look at the S&P SPDR Tech ETF (XLK).
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