Word of the Week: "Material Adverse Change"

Federal Reserve Chairman Ben Bernanke came under fire this week for allegedly forcing Bank of America's acquisition of Merrill Lynch. Bank of America (BAC) had attempted to wrestle out of the deal, reportedly citing something called a material adverse change clause in the acquisition. House Republicans claim that Bernanke had threatened to replace Bank of America management, if they invoked the MAC clause. So, what is a material adverse change?

Material adverse change refers to a type of clause in a merger or acquisition that prescribes a list of negative possible outcomes. These "MAC clauses" help reduce the level of risk for a buyer (in an acquisition) or both parties (in a merger) by spelling out the negative events that could occur between the time a deal is signed and closed. MAC clauses serve as a jumping-off point for renegotiation should an unfortunate turn of events happen to an interested party before the deal is done.

Debate over Bank of America CEO Kenneth Lewis and his MAC move arose earlier this month. But while Merrill Lynch may have lost billions of dollars as this deal was ironed out, some experts remain dubious that Lewis could make a valid MAC claim.

"A MAC, as interpreted by the Delaware courts, is required to be of a long-term durational nature," wrote the New York Times' Steven M. Davidoff, aka "The Deal Professor." According to Davidoff, this situation doesn't meet the MAC mark.

"The only way we can see for the MAC to have applied would be if Bank of America discovered that some huge bundle of assets had been incorrectly marked as being more valuable than they were," said Business Insider's John Carney.