A Deeper Dive into the AGL Resources–Southern Company Merger

(Continued from Prior Part)

Continuing from Part 2 of this series, the Material Adverse Effect clause lays out the conditions under which The Southern Company (SO) can back out of its deal with AGL Resources (AGL).

As a general rule, MAE clauses follow a similar format. Pretty much anything that has a material adverse effect on the company will be considered an MAE, but there are exceptions to that rule.

Please note that the MAE clause has been paraphrased here to limit the legalese. You should still read and understand the actual language in the merger agreement.

“’Company Material Adverse Effect’ means any fact, occurrence, change, effect, or circumstance, individually or in the aggregate with all other facts, occurrences, changes, effects, and circumstances that (a) has had, or would reasonably be expected to result in, a material adverse effect on the business, assets, liabilities, properties, or results of operations or financial condition of the Company and the Company Subsidiaries, taken as a whole, or (b) would, or would reasonably be expected to, prevent or materially impair or delay the ability of the Company to perform its obligations under this Agreement or consummate the Transactions; except that with respect to clause (a), in no event will any of the following, either alone or in combination, constitute a ‘Company Material Adverse Effect’ or be taken into account in determining whether a Company Material Adverse Effect has occurred or would reasonably be expected to occur.”

This is standard MAE language. The carve-outs follow. My comments are included in italics.

• conditions that generally affect the industries in which the Company operates (in other words, if the government institutes a carbon tax, that isn’t an MAE)
• general economic, political, or regulatory effects (in other words, a recession is not an MAE)
• effects resulting from changes affecting equity or debt market conditions in the United States (in other words, another financial crisis is not an MAE)
• any effects or conditions resulting from an outbreak of hostilities, terrorism, political instability, crisis, or emergency (be careful with the disproportionate effect clause; if a terrorist organization blows up an AGL gas pipeline, that would be an MAE)
• any change in the market price for commodities (any collapse in the price of natural gas or electricity is not an MAE)
• any hurricane, earthquake, flood, or other natural disasters or acts of God (again, note the disproportionate effect clause; an earthquake that takes out one of AGL’s pipelines would be an MAE)

Continue to Next Part

Browse this series on Market Realist:

• Part 1 - The Southern Company, an Electric Utility Holding Company
• Part 2 - Parsing the AGL-Southern Material Adverse Effect Clause: Part 1
• Part 4 - Parsing the AGL-Southern Material Adverse Effect Clause: Part 3