The Fight Between Musk and Twitter Will Come Down to Three Words

Elon Musk’s attempt to walk away from his $44 billion Twitter Inc. buyout will turn on a three-word phrase that’s sometimes asserted in busted mergers -- but rarely passes muster with judges.

“Material Adverse Effect” was cited by Musk’s lawyers in a regulatory filing Friday which argued that undisclosed information about bots on the social media platform is “fundamental to Twitter’s business and financial performance.”

To escape the deal, Musk must prove the alleged omission amounts to an “unexpected, fundamental, permanent” negative development -- akin to blowing a hole in the transaction that can’t be fixed, said Larry Hamermesh, ...