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Report: Private Equity Fund Is Avoiding a Huge Write-Down by Backing Out of American Express Deal

By Bram Berkowitz - May 13, 2020 at 12:38PM

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Carlyle Group agreed in December to purchase a $450 million stake in American Express Global Business Travel, but it's pulling out of the deal.

By pulling out of a deal to purchase a stake in American Express Global Business Travel, the private equity firm Carlyle Group may have saved itself from taking a huge write-down.

That's according to an article published in The New York Post, citing anonymous sources who say Carlyle would have taken a huge hit due to the significant drop in the value of the American Express (AXP -1.07%) joint venture, which offers hotel and air-travel booking services to mostly mid-size companies.

American Express

Image Source: Getty

Back in December, Carlyle announced its plans to purchase a $450 million stake in the company, along with Singapore's sovereign-wealth fund, GIC, which was buying an equal-sized stake. The deal for a total of 20% of the American Express joint venture valued it at $5 billion, including debt.

Recently, however, Carlyle and GIC pulled out of the deal, claiming the company had violated the agreement, which specified that the money was to be used "for acquisitions and for a dividend payment." Instead, they asserted in a Delaware Chancery Court filing Friday, Amex GBT planned to use some of those funds to cover its operating losses.

In addition, the coronavirus pandemic has wreaked havoc on the travel industry, devaluing American Express Global Business Travel by at least 20%, according to sources the Post spoke to.

That makes sense when you consider that American Express disclosed in its recent earnings materials that travel and entertainment spending fell off a cliff in April

American Express T&E Spend

Image Source: American Express

If Carlyle had proceeded with the transaction, which is now being litigated in court, the company would have had to write down the value of its investment, resulting in a big hit to the value of its second long-term fund.

The American Express investment would have reportedly been Carlyle's first in its second long-term fund, which had raised about $2.5 billion before the coronavirus, but had not made any investments.

American Express told The Wall Street Journal that "this action [by Carlyle] neither impacts GBT's [Global Business Travel] ability to manage through the current environment nor constrains any future opportunity." 

But the newspaper also reports that the unraveling of the deal could put in jeopardy a roughly $1.2 billion loan that American Express Global Business Travel had planned to take out. If the deal doesn't close by June 30, the investors behind the loan could decide not to issue it.

Much of that loan, according to the Journal, was originally intended to cover a dividend payment to stakeholders and to fund a possible acquisition.

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