Using the MAE Wisely

US Banker, November, 2005 by William Kucera, Attorney at Mayer Brown Rowe & Maw

There is perhaps no legal concept more ubiquitous with mergers and acquisitions than a "material adverse effect." The MAE is in most agreements documenting an M&A deal, whether public or private, stock or asset, tender offer or one-step merger. Though the MAE concept appears under many guises, the use that receives the most focus from the parties is as a closing condition, when it provides that if, between the signing of the transaction agreement and the closing of the transaction, one of the parties suffers a material adverse effect, the other isn't obligated to proceed.

There has been surprisingly little case law on the topic. However, two Delaware Chancery Court cases discussed the topic: the seminal 2001 decision of IBP Shareholders Litigation v. Tyson Foods and the...

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