Carlyle says Covid-19 pandemic warrants killing AmEx stock deal

[NEW YORK] The Covid-19 pandemic has decimated the world's travel industry and fatally crippled a deal calling for the Carlyle Group and Singapore sovereign-wealth fund GIC to buy 20 per cent of American Express Global Business Travel (AmEx GBT), according to unsealed lawsuits.

Carlyle and GIC asked a judge in separate lawsuits to let them scrap the deal. In the lawsuits, the funds disputed claims by an investment group led by Certares Management - slated to sell the shares in the deal - that the pandemic doesn't provide legitimate legal grounds for pulling the plug. The US$1.5 billion stock-purchase valued the travel entity's total worth at US$5 billion.

Certares, respresenting other investors in the deal, sued earlier seeking an order from a judge to force Carlyle and GIC to finalise the deal. On Thursday, it failed to persuade Delaware Chancery Court Judge Joseph Slights III to schedule a quick trial on its lawsuit. Judge Slights said it would be "impractical and imprudent" to try to protect the deal's June 30 financing deadline with a speedy hearing.

"It's not feasible in times we are in now, where most of the country is locked down because of a pandemic, international travel discouraged and health of population still at risk," the judge said. Certares' lawyer Tibor Nagy argued that without a trial by the end of June, financing for the deal would collapse.

"If this deal doesn't close by June 30, it will never close," Mr Nagy told the judge on a conference call. Jonathan Polkes, one of Carlyle's lawyers, reminded the judge a decision on whether Covid-19 provides proper legal grounds to renege on deals will be groundbreaking. "This is going to be a very closely watched, bellwether case," he said.

Charles Zehren, a Certares spokesperson, declined to immediately comment on the ruling.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

The sale's specific terms don't bar cancelling it if the world is rocked by a worldwide health crisis - like a pandemic - that paralyses the airline, hotel and rental-car industries, Carlyle's and GIC's lawyers said in the lawsuits.While the sale agreement allocates "certain risks to the purchasers, glaringly absent is a carve-out for pandemics," Carlyle's lawyers said.

BUSTED DEALS

The dispute is among more than a half-dozen busted-deal cases tied to Covid-19 that landed in Delaware's business court. The state is the corporate home to more than half of US public companies and more than 60 per cent of Fortune 500 firms. Chancery judges hear cases without juries and can't award punitive damages."Their claims are entirely pretextual," Mr Zehren said Wednesday of Carlyle's and GIC's arguments. "The global pandemic was already well underway when Carlyle and GIC moved to back out of their legal obligations just prior to closing."

The pandemic has buffeted the travel industry, as companies are suffering severe revenue drops. AmEx GBT offers travel services primarily to businesses that book airfare and hotel rooms.

MATERIAL ADVERSE EFFECT

Carlyle and GIC say the economic blows the US economy suffered from the virus amount to a "material adverse effect" under the stock-purchase agreement that allows them to scuttle the deal. Such clauses are common in M&A (mergers and acquisitions) deals.

"The Covid-19 pandemic has caused an unprecedented contraction in the travel industry far more severe than that resulting from any prior natural disaster, terrorist attack, or other disruption," Carlyle's lawyers said.Two years ago, a Delaware judge invoked a material adverse effect clause to allow German drugmaker Fresenius to cancel a US$4.3 billion buyout of US rival Akorn, which tried to cover up serious quality-control problems.

Moves by AmEx GBT - run by Greg O'Hara, founder and head of New York-based Certares - responding to the virus also violated the terms of the stock deal, according to Carlyle's and GIC's court filings.The joint venture's cost-cutting measures, including cutting employees' salaries, imposing a hiring freeze and cracking down on operating expenses means executives haven't been operating the travel firm "in the ordinary course" of business as required by deal's terms, GIC said.

It's "fundamentally unfair to purchasers, who are being asked to pay far more for a company that is a mere shell of what it once was," GIC said. The Delaware cases are Juweel Investors Limited v Carlyle Roundtrip, LP, No 2020-0338, Delaware Chancery Court, Carlyle Roundtrip, LP v Juweel Investors, No 2020-0351, Delaware Chancery Court, Pure Magenta Investment Pte Ltd v Juweel Investors Limited, No 2020-0354 (Dover).

BLOOMBERG