Testimony by Bank of America Corp. (BAC) Chief Executive Ken Lewis about threats to scuttle the Merrill Lynch deal has again focused attention on "material adverse change" clauses in merger agreements.

The use of these legal loopholes, known as MAC clauses, can allow would-be acquirers to get out of a transaction if they want out. In fact, they've played a part in most of the failed deals of the past two years, as the financial crisis punished many companies to the point they were no longer the attractive targets their buyers had thought. Some of the buyers, though, had to pay a steep price to unwind the deals.

For instance, Finish Line Inc. (FINL) got out of its acquisition of rival shoe seller Genesco Inc. (GCO) by paying $175 million and 12% of its stock.

Penn National Gaming Inc.'s (PENN) private-equity suitors wound up settling, backing out of the deal but paying even more than the pact's breakup fee would otherwise have entitled Penn. Conversely, SLM Corp.'s (SLM) failed leveraged buyout saw the student-loan company receive no cash, but resulted in SLM securing a large and much-needed line of credit.

"We've seen an obvious uptick since the economic crisis in people invoking the MAC clause," said Jim Smith, a partner with Dewey & LeBoeuf who co-chairs the firm's securities litigation group. "This is an escape hatch, theoretically."

He pointed out that MAC clauses have picked up since the big M&A boom that peaked in 2007. Those that bought at the tail end of that boom use MACs to get out of paying high breakup fees, though they still pay a steep price to unwind the deals.

"When things were go-go with a lot of private-equity deals, there was a lot less need for MACs," he said. "Then everything hit the wall, and suddenly people with extreme buyers' remorse were relying on them more frequently than they otherwise would."

Lewis, echoing earlier statements, said during congressional testimony that BofA considered invoking the MAC clause because of staggering, unforeseen losses at Merrill. BofA ultimately capitulated to government pressure, and with some new government-backed financial guarantees, went ahead with the merger.

As in many matters, efforts to terminate mergers all come down to the details. And there are many unusual aspects to Bank of America's acquisition of Merrill Lynch. For one thing, the deal finalized under government pressure; moreover, unlike most acquisitions, this one had no breakup fee written into the deal.

In the case of the Merrill purchase, the MAC clause was open to loose interpretation because it stipulated that factors like general economic downturns, in and of themselves, don't constitute a MAC. Therefore, BofA would have had to argue that Merrill did something specifically to itself that caused its results to be worse than the credit crisis alone would have made them. Presumably, Merrill and the government would have taken the opposite stance.

Few, if any, of the recent MAC-related merger bailouts actually were decided by the courts, and many even settled before the legal wars were fought.

Lewis suggested in his testimony that, while a legal victory would have been a win, a loss may have seen a court foist upon BofA a ruined Merrill that collapsed into bankruptcy after BofA backed away from the deal.

-By Joe Bel Bruno, Dow Jones Newswires; 201-938-4047; joe.belbruno@dowjones.com