The would-be buyer of Realogy’s relocation business called off the $400 million deal because it feared the brokerage giant was close to insolvency, according to court documents unsealed Friday.
Realogy filed a complaint on April 27 claiming Madison Dearborn Partners and subsidiary SIRVA were using the coronavirus as an 11th-hour excuse for backing out of the deal.
The complaint also disclosed, however, that SIRVA believed the pandemic had a “devastating” impact on Realogy’s relocation business, Cartus. It also cited “insolvency concerns,” alleging that Realogy “may not remain a going concern long enough to consummate the transaction.” The unsealed complaint was first reported by Inman.
In court documents, Realogy vehemently denied the allegation, calling SIRVA’s assertion “simply untrue and plainly invented to serve as supposed justification for SIRVA’s refusal to close the transaction.” Further, Realogy said it “expects to remain a going concern for the duration of its post-closing obligations.”
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To pay off debt, Realogy to sell relocation biz for $400M
The parties agreed to the Cartus deal in November, with Realogy positioning the sale as a way to help pay down some $3 billion in debt.
The 43-page suit reveals that SIRVA was to pay Realogy $375 million in cash at closing, plus another $25 million after the closing.
According to Realogy, it informed SIRVA on April 24 that all of its obligations had been met ahead of the planned April 30 closing date.
But on Saturday, April 25, Realogy said its CEO Ryan Schneider got a call from Madison Dearborn’s managing director. The executive said SIRVA had “insolvency concerns,” according to the suit. Those concerns triggered the sale agreement’s “material adverse effect” clause, allowing it to walk away.
Realogy rejected the idea that Cartus was hit harder by the pandemic than competitors. “To the contrary, COVID-19 is adversely affecting every similarly situated participate in Cartus’s industry,” it said.
Realogy did not immediately comment. In a statement, SIRVA rejected the notion that its own financial condition was preventing it from closing, saying it received actual and forecasted financial figures on Cartus shortly before the deal was to close.
“Unfortunately, Realogy’s response was to sue to get relief it is not entitled to under the transaction documents,” the statement said. “SIRVA intends to pursue contractual remedies against Realogy related to its multiple breaches.”
Realogy, like many real estate firms, hasn’t escaped the economic impact of Covid. In late March, it cut salaries and shortened its employees’ work hours. Schneider has taken a 90 percent pay cut.
On Friday, Realogy’s stock closed at just over $4 a share, down 55 percent from November 2019.
Correction: An earlier version of this story misstated the amount of debt Realogy said in November that it was trying to pay down. It was $3 billion, not $3 million.