Agility Desperate to Settle with US Government

* username: rupertbu

Agility, once an undisputed star of the Kuwait SE, has been suffering from a vicious financial death spiral initiated by fraud accusations from its biggest customer: the US government. It all got started crumbling in mid-November 2009 when Kamal Mustafa Al-Sultan acted as a whistleblower and filed a lawsuit against Agility which was later charged with fraud and conspiracy alleging that it overcharged the U.S. Army on $8.5 billion worth of contracts to provide food to soldiers in Iraq, Kuwait and Jordan. The indictment is a big deal since it prevents Agility from bidding for US government contracts during the legal proceedings which constitute 75% of its EBIDTA (Cheuvreux estimates). Needless to say, Agility’s shares took a severe dive by more than 50% from the peak and failed to recover. Lacking further contracts and clear outlook, the company has been laying-off employees during the past few months. Shares of Agility currently trade at 600 fils and haven’t crossed the 700 fils barrier since the fraud accusations.

Agility is definitely desperate to settle with the US government. There were several attempts to postpone the court, but no settlement has been reached yet with the US government. Reports suggest that the U.S. authorities want Agility to pay up to $750 million for the settlement. This sum is far-fetched for Agility as the company’s current market capitalization stands at approximately $2 billion. Kuwaiti daily newspaper Al-Jarida suggests that Agility wants to pay between $300 million to $500 million in compensation. Pending reaching a settlement, Agility requested a trading halt on its shares and permission from the Kuwait SE to delay the release of its financial results until Tuesday. Further Al-Jarida elaborated that negotiations were around a schedule for repayment and circulated on whether Agility will get new contracts with the U.S. military.

There are fears Agility doesn’t reach settlement and it loses on 75% of its EBITDA for a while as court cases take long durations to finally unfold. T here is a desperate need for settlement, but how much is a good deal or a bad deal?