The most recent deal not going according to the merger-arb playbook is Bank of America's (NYSE:BAC) acquisition of Countrywide (CFC). The takeover takeunder is valued at $6.47 per share, but Countrywide is trading at only $5.11. How come? Well, have a look at the MAC clause (a/k/a section III 3.8(a) of the merger agreement), detailing the representations and warranties made by Countrywide:
Since September 30, 2007, no event or events have occurred that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect on Company.
That's the entire dreadful fourth quarter. My feeling is that this clause is a "get out of jail free" card for BofA: if Ken Lewis changes his mind, he shouldn't find it too hard to find a material adverse effect at some point in the past few months.
And that's not the only clause he has to rely on, either. There's section III 3.5(c), too:
Company has previously made available to Parent an accurate and complete copy of each... communication mailed by Company to its stockholders since January 1, 2005 and prior to the date of this Agreement. No such Company SEC Report or communication, at the time filed, furnished or communicated (and, in the case of registration statements and proxy statements, on the dates of effectiveness and the dates of the relevant meetings, respectively), contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances in which they were made, not misleading...
And III 3.6(a):
The financial statements of Company and its Subsidiaries included (or incorporated by reference) in the Company SEC Reports (including the related notes, where applicable)... fairly present in all material respects the consolidated results of operations, cash flows, changes in stockholders' equity and consolidated financial position of Company and its Subsidiaries for the respective fiscal periods or as of the respective dates therein set forth.. and have been prepared in accordance with GAAP consistently applied... The books and records of Company and its Subsidiaries have been, and are being, maintained in all material respects in accordance with GAAP and any other applicable legal and accounting requirements and reflect only actual transactions.
And there's more where those came from. Maybe Lewis is smarter than the market gave him credit for: he basically bought a call option on the company at a very low strike, rather than purchasing Countrywide outright.