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Material Adverse Change Clauses and Acquisition Dynamics

Published online by Cambridge University Press:  10 June 2013

David J. Denis  and
Antonio J. Macias
David J. Denis
Affiliation:
djdenis@katz.pitt.edu, Katz Graduate School of Business, University of Pittsburgh, 324 Mervis Hall, Pittsburgh, PA 15260
Antonio J. Macias
Affiliation:
a.macias@tcu.edu, Neely School of Business, Texas Christian University, TCU Box 298530, Fort Worth, TX 76129
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Abstract

Material adverse change (MAC) clauses are a ubiquitous feature of acquisitions and exhibit substantial cross-sectional variation in the number and types of events that are excluded from being material adverse events (MAEs). MAEs are the underlying cause of 69% ofacquisition terminations and 80% of renegotiations. These renegotiations lead to substantial changes in the price offered to target shareholders. Acquisitions with fewer MAE exclusions are characterized by wider arbitrage spreads during the acquisition period and are associated with higher offer premiums. We conclude that MAC clauses have an economically important impact on the dynamics of corporate acquisitions.

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Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 48 , Issue 3 , June 2013 , pp. 819 - 847
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2013 

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