The US government will not renew a major food supply contract with Agility, the Kuwaiti logistics and transport company announced yesterday, dealing an expected blow to its key business with the US military. Agility is under indictment in the US for allegedly overcharging the military on a food supply contract that ran from 2003 to this year.
The company was replaced as "prime vendor" of food to the US government in Iraq and Kuwait by another company on the contract, it said yesterday in a statement to the Kuwait Stock Exchange. Agility did not name its replacement but said it would continue to supply the US military for six months "to guarantee continuity of supplies". The company's stock fell 5 per cent to 570 fils yesterday even though the move was widely expected by analysts.
Under the indictment, Agility was already barred from winning new US awards. In December, it was abruptly dropped from a separate subcontract for airfield support with DynCorp International, the US security and logistics company. Its portion of the contract was worth at least US$190 million (Dh697.9m). Agility had hoped to reach a settlement with the US government to be able to bid for new contracts but was instead hit with two fresh indictments of its subsidiaries on Tuesday.
The continuing scrutiny by the US government, which began with the first indictment last November 16, has affected the company's reputation and its ability to win new contracts from other military clients, including the UN and NATO, said Scott Darling, an analyst at Nomura Securities. "There is a reputational issue to be managed post this case," Mr Darling wrote in a recent note. "The damage over its dealings with the US government may affect other governments' decisions when awarding specialist logistics contracts."
Nomura expects the company to have to pay as much as $750m to settle the case, with a courtroom fight proving even more costly. "A scenario where there is no settlement with a lengthy [and costly] legal battle could prolong uncertainty," Mr Darling wrote. Agility's stock has lost 47 per cent of its value since the indictment. On Monday, it announced an unexpected gain in net profits of 22 per cent in the fourth quarter of last year from the same period in 2008, and the board recommended a dividend of 40 fils a share.
But government and defence services make up as much as 40 per cent of the company's revenues, according to various estimates, meaning continued fallout from the indictment could hurt its business for years to come, analysts said. @Email:email@example.com