By AnnaMaria Andriotis and Miriam Gottfried
Private-equity firm Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. Ltd. are backing away from a deal to take a 20% stake in American Express Global Business Travel, whose revenue has plummeted as a result of the coronavirus pandemic, according to people familiar with the matter.
The deal, announced in December, values the company at $5 billion including debt. It was scheduled to close Thursday but representatives for Carlyle and GIC informed AmEx Global Business Travel on Wednesday they wouldn't participate in the closing, the people said.
AmEx Global Business Travel, which is 50%-owned by American Express Co., offers airfare and hotel-booking services mostly to large and midsize businesses. In 2014 the credit-card giant sold the other half to a group led by investment firm Certares. Carlyle and GIC, along with a group of others, agreed to purchase a portion of that stake last year.
An entity acting on behalf of the sellers filed a motion this past week in Delaware Chancery Court against Carlyle and GIC, calling for it to compel the duo to proceed with the purchase.
If the deal is scuttled, it would be the latest high-profile transaction to fall apart as a result of the pandemic. On May 4, L Brands Inc. and private-equity firm Sycamore Partners said they were scrapping plans to take Victoria's Secret private, a decision that came after Sycamore filed a lawsuit to try to cancel the deal.
AmEx Global Business Travel isn't party to the dispute. It "continues to operate with a strong group of existing shareholders committed to the success of GBT's business," a spokesman said. "This action neither impacts GBT's ability to manage through the current environment nor constrains any future opportunity."
Revenue at AmEx Global Business Travel has plunged since the pandemic closed offices and caused travel to grind to a halt. The company's sales fell roughly 70% year-over-year in March, according to people familiar with its financials.
The potential dissolution of the deal throws into question a roughly $1.2 billion loan to AmEx Global Business Travel for which the company has received commitments from investors. If the deal doesn't close by June 30, the lenders could also walk away.
Much of the loan was originally intended to pay a dividend to stakeholders and to fund a possible acquisition. AmEx Global Business Travel told lenders in mid-April it would scale back the dividend payment. Some $112 million of the financing would be used to pay current and former senior employees in connection with the deal.
The company has told lenders it is slashing roughly $600 million in costs, with about half of that coming from pay cuts, layoffs and furloughs, people familiar with the matter said. It could also tap the debt market to raise additional cash as Expedia Group Inc. and other travel-related businesses have done, some of the people said.
The deal began to unravel in early April when Carlyle raised concerns that the coronavirus shutdown constitutes a "material adverse effect" and that the travel-booking business would soon be insolvent, which the sellers disagree with.
In a Delaware court filing Friday, the private-equity firm outlined what it alleged were four violations of the purchase agreement, including that the company was planning to use a significant portion of its investment to fund operating losses. The sellers also deny that claim.
Carlyle agreed to do the deal through a vehicle designed to hold companies for longer than the roughly five years typical for private equity. The firm's maiden fund with that strategy was one of three Carlyle identified in its first-quarter earnings report whose asset values had tumbled so much that they wiped out performance-related fees it was receiving.
Write to AnnaMaria Andriotis at email@example.com and Miriam Gottfried at Miriam.Gottfried@wsj.com
(END) Dow Jones Newswires
May 09, 2020 10:39 ET (14:39 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.