(Reuters) - Financial technology provider WEX Inc (WEX.N) said on Thursday it could walk away from a $1.7 billion deal to acquire travel payment services providers eNett and Optal because of the impact of the coronavirus outbreak on their business.
The warning is the latest example of corporate buyer’s remorse in the wake of the pandemic. In some cases, acquirers have managed to walk away. On Monday, L Brands Inc (LB.N) allowed private equity firm Sycamore Partners to terminate a $525 million deal to acquire its Victoria’s Secret lingerie business after the two exchanged lawsuits.
In other cases, the acquirer’s threat to call off a deal has led to a renegotiation of the price. For example, auto parts maker BorgWarner Inc (BWA.N) said on Wednesday it had negotiated down an all-stock deal to buy peer Delphi Technologies Plc (DLPH.N) by 5%, after it threatened to walk away.
Sycamore and BorgWarner sought to abandon their deals on the basis that action by their acquisition targets, from closing stores to drawing down on credit lines to cope with the pandemic, breached their contractual obligations. WEX, on the other hand, said it no longer had to complete its deal because the virus had a material adverse effect (MAE) on the business of eNett and Optal.
The sellers responded by arguing in a statement on Thursday that the travel restrictions imposed by governments to curb the spread of the coronavirus were excluded from their contractual definition of an MAE.
“The purchase agreement, which was executed on Jan. 24, after COVID-19 had already publicly begun its spread across the globe, expressly excludes the effects of a pandemic from the definition of MAE,” Optal, eNett and eNett’s owner, Travelport, said in the statement.
WEX’s shares jumped on the news, ending the day 6% higher.
The legal standard for acquirers to demonstrate in court that an MAE has occurred is very high. The only occasion in which a judge has ruled in Delaware — where many of these cases are litigated — that an MAE allows the acquirer to walk away was in Fresenius SE’s (FREG.DE) $4.75 billion deal to buy generics drug maker Akorn (AKRX.O) in 2018.
When asked on an earnings call with analysts on Thursday about the possibility of the dispute being resolved in court, WEX Chief Executive Melissa Smith said it was still unclear how things would play out.
The deal WEX agreed for eNett and Optal in January, which would expand its presence in the online travel bookings market, was comprised of $1.28 billion in cash and the rest in WEX stock.
Since then, the global travel market has come to a halt. Airline industry groups told a U.S. Senate committee on Wednesday that U.S. passenger air travel was down by 95%.
Reporting by Krystal Hu and David French in New York; Additional reporting by Echo Wang in New York; Editing by Leslie Adler