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Why WEX Stock Just Popped 7%

By Rich Smith – Oct 12, 2020 at 12:42PM

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Wex wins Round 1 in the U.K.

What happened

Shares of Wex (WEX -0.08%), which facilitates corporate payments for such varied services as fueling up trucks, paying employee benefits, and making business trips, is seeing its share price rise 7% through 11:25 a.m. EDT. Curiously, the reason for this rise is because Wex will not be growing this business.

Instead, Wex is backing out of a deal to expand its travel services business, and today, a court in England gave it the green light to do so.

Gavel and block against a British flag in background

Image source: Getty Images.

So what

In January, Wex struck a deal to acquire eNett, "the foremost payments leader in the global travel marketplace" (said Wex at the time), along with its related company Optal, for a total of $1.7 billion. A couple months later, though, Wex decided to abandon the purchase, citing the arrival of COVID-19 as a "materially adverse effect" that undermined the basis of the bargain it had made to acquire the companies.    

In a lawsuit filed in May, eNett asked the court to compel Wex to proceed with the purchase. But this morning, Wex announced that the High Court of Justice of England and Wales in the United Kingdom has decided in Wex's favor, declaring that COVID-19 did in fact trigger the purchase contract's Material Adverse Effect Clause and that Wex need not proceed with the purchase.  

Now what

Wex notes that it is possible eNett and Optal will appeal the court's decision, which in any case related only to a "trial of preliminary issues." Whether or not an appeal is filed, Wex notes that there is still a "subsequent trial" to get through before it can be conclusively absolved of its need to buy eNett and Optal.

In short, Wex has won an important legal battle -- but the war isn't quite finished yet.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends WEX. The Motley Fool has a disclosure policy.

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