Motivations for Material Adverse Change Clauses in Merger Agreements

51 Pages Posted: 15 Jun 2016

See all articles by Antonio J. Macias

Antonio J. Macias

Baylor University

Thomas Moeller

Texas Christian University - Neeley School of Business

Date Written: June 05, 2016

Abstract

Material Adverse Change (MAC) clauses play key roles in essentially all merger negotiations. Fewer exclusions in MAC clauses imply broader abandonment options for acquirers. We study the motivations for different scopes of acquirers’ abandonment options. In our comprehensive hand-collected sample, broader firm-specific abandonment options are associated with higher target announcement returns and higher combined acquirer and target announcement gains, lower probabilities of MAC occurrences, and lower conditional completion rates when MACs occur. They are also more prevalent in higher-quality firms with larger information asymmetries. Overall, the results indicate that targets credibly signal their higher values or greater synergies with broader abandonment options for acquirers.

Keywords: Mergers, Acquisitions, Signaling, Material Adverse Change Clauses

JEL Classification: D86, G14, G32, G34

Suggested Citation

Macias, Antonio J. and Moeller, Thomas, Motivations for Material Adverse Change Clauses in Merger Agreements (June 05, 2016). Available at SSRN: https://ssrn.com/abstract=2795621 or http://dx.doi.org/10.2139/ssrn.2795621

Antonio J. Macias (Contact Author)

Baylor University ( email )

Hankamer School of Business
Waco, TX 76798
United States

Thomas Moeller

Texas Christian University - Neeley School of Business ( email )

TCU Box 298530
Fort Worth, TX 76129
United States
817.257.7457 (Phone)

HOME PAGE: http://www.thomasmoeller.net

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