Carlyle Group and Singapore’s sovereign wealth fund GIC are calling off their acquisition of a stake in American Express Global Business Travel, igniting a legal battle over a deal that would have valued the pandemic-hit company at $5bn.
The two investment groups were due to consummate the transaction at a virtual signing ceremony on Thursday, but indicated they would not attend, according to a note to lenders who had signed up to provide financing for the transaction, seen by the Financial Times.
“The sellers violated several terms of the purchase agreement and as a result we are seeking a judicial confirmation that we have no obligation to close the transaction,” Carlyle said on Saturday.
American Express spun off its business travel agency into a joint venture in 2014, retaining a 50 per cent stake alongside a consortium of investors led by boutique investment firm Certares.
The company’s profits have tripled since the deal, reaching $450m last year, one of the people said, before the spread of coronavirus halted most business trips and gutted the revenues of travel companies around the world.
Carlyle and GIC had struck a deal to buy out some of the original investors, agreeing to pay $900m for a 20 per cent stake, according to people familiar with the transaction. GIC could not immediately be reached for comment.
The sellers filed a lawsuit in Delaware last Wednesday, demanding that a court take urgent action to enforce the deal ahead of a June 30 deadline.
Carlyle shot back with a lawsuit of its own, arguing that the coronavirus pandemic had triggered a “material adverse event” clause allowing the firm to cancel its investment.
The private equity group also complained that the sellers, having agreed to operate the business as normal, had instead furloughed employees and implemented other cost-cutting measures in response to the spreading disease and collapsing demand. The sellers believe those arguments “have no merit,” AMEX Global Business Travel wrote in its note to lenders.
The competing lawsuits could set up a definitive test of an argument first tried by private equity firm Sycamore Partners last month, when it sought to wiggle out of an agreement to buy lingerie retailer Victoria’s Secret from L Brands.
Sycamore, too, argued that L Brands had violated a merger agreement when it went ahead and changed the way it ran its business following the outbreak of Covid-19 without seeking the approval of the private equity buyer.
But the two sides last week agreed a truce, cancelling the deal and all the litigation that followed it, meaning the argument has yet to be tested in court.
Carlyle had been planning to include the deal in its Global Partners fund, which aims to “deliver attractive risk-adjusted returns on significant sums of capital over a longer timeframe than typical private equity funds.”
The fund already has large investments in sectors such as aviation and live events, and in the three months to March 31, its asset valuation fell sharply enough to wipe out all of Carlyle’s accrued performance revenue.