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Illustration: Aïda Amer/Axios

A Delaware judge this afternoon will hear arguments on a case that could help determine the fates of dozens of pending mergers that were signed prior to the pandemic. It also could permanently change how future investment agreements are written.

The big question: Must the parties have explicitly identified "pandemic" in claiming a material adverse effect, or are the results of the coronavirus pandemic included under changes arising from "national or international political or social conditions?"

This is the case we first discussed on Monday, whereby The Carlyle Group is backing out of a $900 million investment for a 20% stake in corporate travel agency American Express GBT. Both the suit and countersuit have now been unsealed:

Both sides agree that American Express GBT's business has been severely damaged. The devil is in the details:

  • Carlyle will argue that plenty of merger agreements explicitly carve out "pandemics" from being a legitimate reason for buyers to bail, just as they might also carve out acts of war or terrorism. In fact, the law firm representing American Express GBT has done so in other deals. Its absence from this agreement, in Carlyle's view, is proof that it's an illegitimate defense.
  • American Express GBT will argue that a "pandemic" itself isn't the defining issue. Instead, it's the "national or international political or social conditions" that have arisen from this specific pandemic, including broad international travel restrictions and hotel closures that go far beyond what's occurred in past pandemics.
  • In short: Carlyle believes in more narrow, tailored language. American Express GBP went for the umbrella.

Plus, there are three other interesting ingredients here, again mostly involving differences of interpretation.

  • American Express GBT CEO Greg O'Hara had repeatedly, and publicly, said that a pandemic would be devastating for his business. Yet he never sought pandemic-specific language in this agreement. To Carlyle, that's an admission that it doesn't apply. To American Express GBT, it's proof that they expected it to apply.
  • Duration can a key piece of proving MAE, and both sides agree that the economic harm here will be measured in years, not months. But this deal included a 10-year lockup, and Carlyle co-founder David Rubenstein told CNBC yesterday that he expects people to get back to life as usual once there’s a vaccine. If this comes up, don’t be surprised if Carlyle instead relies on CEO surveys that suggest business travel has been permanently altered.
  • Carlyle is being joined in its suit by Singapore sovereign wealth fund GIC, a major Carlyle limited partner that was participating as a co-investor. None of the other institutional co-investors are claiming MAE, nor are the deal’s lenders. American Express GBT likely views this as proof that Carlyle is an outlier. Carlyle likely views this as everyone else letting the biggest dog do the dirtiest work.

The bottom line: Every financial crisis has its seminal legal cases. For 2020, one of them begins today at 2pm ET.

Go deeper

27 mins ago - Technology

Scoop: Facebook exec warns of "more bad headlines"

Illustration: Annelise Capossela/Axios

In a post to staffers Saturday obtained by Axios, Facebook VP of global affairs Nick Clegg warned the company that worse coverage could be on the way: “We need to steel ourselves for more bad headlines in the coming days, I’m afraid.”

Catch up quick: Roughly two dozen news outlets had agreed to hold stories based on leaked materials from Facebook whistleblower Frances Haugen for Monday publication — but the embargo fell apart Friday night as participating newsrooms posted a batch of articles ahead of the weekend.

"Atmospheric river" to whiplash Northern California from drought to flood

A map depicting 24-hour preciptation forecast (inches) ending Monday at 5a.m. local time. Photo: NOAA

A series of powerful "atmospheric river" storms are set dump historic amounts of rainfall across parts of drought-stricken California and the Pacific Northwest from this weekend, forecasters warn.

Why it matters: A strong atmospheric river, packing large amounts of moisture, is predicted to whiplash Northern California from drought to flood.

Inside Biden's Taiwan flubs

Illustration: Aïda Amer/Axios

Twice this year, President Biden has blurted out commitments that the U.S. is prepared to defend Taiwan against a Chinese invasion — forcing the White House to walk back his statements and leading to confusion over a high-stakes national security policy.

Why it matters: U.S. defense officials have publicly aired their concerns that China will take Taiwan by force in the next four to six years, perhaps sooner. The president's position on this question may soon have real-world, life and death consequences.