The party line is that Lewis was well on his way to dumping the Merrill merger via a Material Adverse Change clause and dumping (one assumes) the now empty dancecard holding bank into bankruptcy. If you want to add nuance, you can append "unless you give us some cash" to the end of that particular party line. Sure, Lewis is making quite a lot of noise about this being forced into marriage with Merrill thing now that push comes to shove, but did Lewis really have an option? A look at the merger agreement gives us some interesting hints:
...a "Material Adverse Effect" shall not be deemed to include effects to the extent resulting from (A) changes, after the date hereof, in GAAP or regulatory accounting requirements applicable generally to companies in the industries in which such party and its Subsidiaries operate, (B) changes, after the date hereof, in laws, rules, regulations or the interpretation of laws, rules or regulations by Governmental Authorities of general applicability to companies in the industries in which such party and its Subsidiaries operate, (C) actions or omissions taken with the prior written consent of the other party or expressly required by this Agreement, (D) changes in global, national or regional political conditions (including acts of terrorism or war) or general business, economic or market conditions, including changes generally in prevailing interest rates, currency exchange rates, credit markets and price levels or trading volumes in the United States or foreign securities markets, in each case generally affecting the industries in which such party or its Subsidiaries operate and including changes to any previously correctly applied asset marks resulting therefrom... (Emphasis added).
In fact, the entire MAC clause is pretty restrictive. It becomes pretty easy to see that this was a pretty tight document.
This brings up the question: How could Paulson fallen for such a bluff? He is (was), after all, a savvy banker. Did he just not read the document? Did Lewis forget to have a staffer review it for him and give him the cliffnotes over a box of Boone's Farm Strawberry Hill? Or did someone (or someones) pull a fast one?
Agreement and Plan of Merger [SEC.gov]