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29 October 2020, 1030 - 1630 CET
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Three-and-a-half months after agreeing to the US$1.7 billion
acquisition of virtual travel payments providers eNett and Optal, Wex Inc wants
to back out of the deal, citing the effect in the corporate travel sector of
the Covid-19 pandemic – but the sellers say not so fast.
In January, Wex signed a definitive agreement to purchase
eNett from majority owner Travelport and minority equity investor Optal, while
also acquiring Optal itself. The sale price included US$1.275 billion in cash
along with issuance of two million shares of common stock to the sellers.
The deal was approved by Wex's board of directors and was
set to close by the middle of this year.
But the onset of the global Covid-19 outbreak changed all
that, according to Wex, which said on Thursday that the pandemic had caused the
company to rethink the deal, asserting its right to do so under the agreement.
Wex "has concluded that the pandemic and conditions
arising in connection with it have had, and continue to have, a material
adverse effect on the businesses," of eNett and Optal, the company said in
a statement. "Because of this material adverse effect, Wex has advised
eNett and Optal that it is not required to close the transaction pursuant to
the terms of the purchase agreement".
Wex's counterparties in the transaction didn't take the news
kindly, immediately issuing a strongly worded rebuttal to Wex's announcement.
The companies said that "eNett, Travelport and Optal
reject Wex's attempt to walk away from its binding agreement" – adding that
the outbreak of the virus was already apparent when the deal was signed in
"The purchase agreement, which was executed on 24 January
2020, after Covid-19 had already publicly begun its spread across the globe,
expressly excludes the effects of a pandemic from the definition of Material
Adverse Effect," the sellers' statement said. "In addition, the
definition of Material Adverse Effect also excludes the effects of any changes
in laws or regulations, such as governmental travel restrictions. Wex therefore
assumed all of these risks when it signed the purchase agreement."
Travelport and Optal said they intend to "vigorously
enforce" the sale agreement and expect Wex to "perform its
contractual obligations, including to finalise its financing, obtain the
remaining governmental approvals, and close the transaction”.
During its first-quarter earnings call, Wex CEO Melissa
Smith said the decision to pull out was not made lightly, noting that Wex had
never before "walked away from a signed deal”.
"We wanted to be absolutely sure of our position before
we made the step of notification," Smith said, declining to speculate on
next steps and whether the deal might be salvaged should the sellers offer a
The acquisition of eNett and Optal had been seen as another
significant step in the growth of Wex's corporate travel payments business. The
Portland, Maine-based company, which was founded in 1983 as a fleet and fuel
card specialist, has in recent years emphasised virtual corporate travel payments
as it grew into a multibillion-dollar global company.
According to filings, eNett, which specialises in generating
virtual account numbers for payments for hotels and other non-air suppliers,
had enjoyed a 36 per cent compounded growth rate in its purchase volume since
But the Covid-19 pandemic has ground corporate travel to a
screeching halt since mid-March and had taken a significant bite out of Wex's
own bottom line. The company this week reported a first-quarter loss of US$16.3
million, despite strong results during the first half of the quarter, before
the virus took hold around the world. The lingering uncertainty spurred Wex to
withdraw its financial guidance for the rest of the 2020 fiscal year.