Carlyle Group, GIC and Amex GBT go to court over scrapped deal

The Carlyle Group and GIC aren't proceeding with their $900 million deal for a 20% stake in American Express Global Business Travel, claiming that the sellers didn't meet closing conditions. The two sides are now suing each other, with a Delaware court to hear the case on Thursday.

Why it matters: This could lead to the first judicial ruling over whether or not the coronavirus pandemic has tripped a material adverse effect (MAE) clause in a merger agreement. Every deal is unique, but this could establish some broad legal guardrails.

At issue: Carlyle and GIC not only argue for the existence of an MAE, due to the global travel slowdown, but also that the sellers violated financing terms by planning to use proceeds to bolster the company's balance sheet (i.e., a de facto bailout) rather than to fund a potential acquisition and provide shareholder dividends. Amex GBT argues that Carlyle and GIC are wrong on both counts.

The bottom line: This is a broader test case than was L Brands vs. Sycamore Partners over Victoria's Secret, which ended after L Brands inexplicably gave up, where the MAE had an explicit carve-out for pandemics.