Complex Made Simple

Can you buy a billion dollar company for $1? One company thinks so

Private equity company Abraaj, which used to handle around $14 billion at its prime, filed for liquidation earlier this year following a health care fund controversy.

The company received many offers, such as American firm Cerberus Capital Management LP’s $25 million offer a couple months back for Abraaj’s asset-management platform, which was the lowest they had received yet.

It seems Abraaj wasn’t too happy about the meager sum, as Cerberus pulled their offer soon after while they reconsider another bid. Abraaj is knee-deep in debt, and $25 million was most likely not the number they had in mind when they filed for liquidation.

Now, however, Bloomberg reports that one British company, Actis, is bringing an even lower offer to the table: an unbelievable $1 bid for the Abraaj Fund Unit (AFU).

It is still not clear what Abraaj’s reaction will be to the shocking offer, but it’s clear there’s more behind this bid than immediately apparent.

READ: No jail time: Is the Abraaj cheque ordeal over?

What could the reasoning behind a $1 offer be?

The concept of a $1 offer is shockingly not too rare in the world of business. What’s possibly being offered here is the acquisition of the assets of the Abraaj Fund Unit for $1, in exchange for taking on the equity firm’s debt and liabilities.

In an essay titled ‘Acquiring a troubled business in bankruptcy or outside of bankruptcy,’ James H.M. Sprayregen explains: “Asset sales in bankruptcy generally are free and clear of liens and claims.”

“The major benefit provided by a Bankruptcy Court order approving an asset sale or sale under a Plan is that the Debtors’ assets are transferred to the purchaser free and clear of virtually all liens and claims.”

“Some dispute exists as to whether the Bankruptcy Court can effectively order the transfer of assets free of successor liability for certain product liability and environmental claims. In addition, certain environmental laws impose current owner/operator liability on a purchaser regardless of the identity of previous owners of the assets.”

If we assume this is the case here, Actis could be looking to offer Abraaj a way out from its debts, in return for the assets of the AFU. While the stipulations of the bid are still unknown, we can only speculate as to the true intentions here.

Cerberus’ previous $25 million offer could have merely transferred Abraaj’s asset-management platform to the company, but left Abraaj with the $1 billion debt. It is possible that is the reason things didn’t work out between the two firms and why Cerberus had to withdraw its deal.

READ: Has Abraaj truly mismanaged yet another fund?

Who else has bid for the company?

Many companies have eagerly lined up to salvage the faltering pieces of Abraaj. “Colony Capital Inc., whose earlier bid for Abraaj’s entire fund business was rejected, made an offer for its Latin American operations, while Helios Capital Management is bidding for the Africa platform, they said,” Bloomberg reports. “NBK Capital, the investment banking unit of National Bank of Kuwait, made an offer for Abraaj’s Middle East and North Africa business, they said.”

York Capital Management has offered about $400 million, including $350 million to buy Abraaj’s stakes in some of its private equity funds and the rest for the asset-management platform, people familiar with the matter told Bloomberg.

The company has yet to settle on a buyer, as it needs to carefully consider how it will repay the reported $1 billion debt it has accrued over the years.

READ: $1bn healthcare fund separated: The source of Abraaj’s problems resolved?

Abraaj’s founder dodged a 3-year prison sentence

Ariq Naqvi, the man behind the rise and success of Abraaj, was caught in legal battle after legal battle as his $300 million creditor came knocking. Naqvi had issued Hamid Jaafar, the claimant, 3 checks to repay his debt, and two of those had bounced.

Jafar was not pleased, taking the case to court. Naqvi barely dodged a prison sentence after coming to a settlement with Jafar.

The source of Abraaj’s troubles

All of Abraaj’s troubles started in February, when 4 investors had hired auditors to examine a $1 billion health care fund they had a stake in. The audit found Abraaj to be guilty of mishandling the fund, and they filed for liquidation soon after.

READ: The DFSA hammers the final nail in the coffin for Abraaj