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AmEx GBT investors, Carlyle dispute COVID-19 effect on closing conditions

Daniel Rice  

Daniel Rice  

(May 19, 2020) - A potentially momentous dispute has emerged about whether an affiliate of asset management firm Carlyle Group Inc. must complete its purchase of a significant stake in American Express Global Business Travel despite drastic cutbacks due to the COVID-19 pandemic.

Juweel Investors Ltd. v. Carlyle Roundtrip LP et al., No. 2020-0338, complaint filed, 2020 WL 2488122 (Del. Ch. May 11, 2020).
 
Carlyle Roundtrip LP v. Juweel Investors Ltd. et al., No. 2020-0351, complaint filed, 2020 WL 2479734 (Del. Ch. May 13, 2020).
 
Carlyle Roundtrip LP says in a complaint filed May 13 in the Delaware Chancery Court that it is not required to close the deal because the outbreak has caused a “material adverse effect,” or MAE, on AmEx GBT’s business.
 
AmEx GBT provides travel services, including arranging airfare and hotel stays, for business clients. Carlyle Roundtrip and Singaporean sovereign wealth fund GIC Pte Ltd. agreed in December to purchase a 20% stake in the company from Juweel Investors Ltd. in a deal estimated to be worth about $1.5 billion.
 
Juweel sued the potential buyers in the Delaware Chancery Court on May 11, seeking specific performance of the purchase agreement and related relief. Carlyle Roundtrip responded with its own suit asking the court to declare that it no longer has an obligation to close.
 
On May 14, Vice Chancellor Joseph R. Slights III refused to expedite Juweel’s suit notwithstanding the pending expiration of a related financing agreement that could cause irreparable harm. The judge noted that the case “implicates the MAE issue and all of its contours, as well as multiple other nuanced legal disputes.”
 

’Material adverse effect’

Carlyle Roundtrip’s and Juweel’s competing lawsuits in Delaware’s business dispute court offer opposing views of whether the dramatic downturn in business-related travel due to COVID-19 represents an MAE under their share purchase agreement.
 
According to both lawsuits, one of the conditions for completing the transaction is the absence of an MAE between the deal’s signing and closing.
 
But Carlyle Roundtrip says in its complaint that the pandemic has “destroyed” AmEx GBT’s business and constitutes an MAE.
 
The agreement’s definition of MAE does not include a carve-out for pandemics or similar major events, meaning that the sellers bear the risk of such an event occurring, the investment firm says.
 
Carlyle Roundtrip also says the sellers breached other contract terms, including obligations related to refinancing and capitalization for AmEx GBT. The sellers and AmEx GBT developed a plan to use transaction proceeds to cover AmEx GBT’s COVID-19-related losses in violation of the agreement, according to the lawsuit.
 

’Buyer’s remorse’

In its lawsuit, Juweel says Carlyle Roundtrip has experienced “buyer’s remorse” made more severe by the steep investment losses allegedly suffered by its parent company during the recent market downturn.
 
Juweel says the spread of COVID-19 does not represent an MAE because the pandemic has impeded global travel in general and has not uniquely harmed AmEx GBT.
 
In addition, pandemic-related effects on the business fall within several carve-outs from the MAE definition, including for “general business or economic conditions” and disruptions in the financial markets, according to the investment group.
 
Juweel also disputes it breached its refinancing obligations or other contract terms and says it remains ready to close the deal.
 

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