Ares Management has seized control of French pharmaceutical group Laboratoire XO, the crown jewel of the beleaguered €1bn private equity fund behind spyware maker NSO Group, in a blow to investors’ hopes of recovering their cash.

The credit business of US private lending giant Ares had advanced about €100mn to LXO. It took control of the company on Friday after refusing to extend a change-of-control waiver in relation to the loan, two people with knowledge of the matter said.

It marks a big setback for investors in the fund, raised by the buyout group Novalpina Capital but now overseen by Berkeley Research Group, a US consultancy. A feud between Novalpina’s co-founders had led the investors to strip them of control of the fund and put BRG in charge instead.

“The legality of the actions taken by Ares will be vigorously challenged,” BRG said in a statement. “All necessary steps will be taken to ensure that the fund’s interest in LXO is restored as quickly as possible.”

BRG said Ares had acknowledged that its concerns “have nothing to do with the creditworthiness of LXO, which is a highly stable and reliable provider of critical pharmaceutical products”. Ares disputes this assessment, according to a person with knowledge of its thinking.

Laboratoire XO, which makes the hypertension drug Loxen, was one of three companies owned by the fund, alongside NSO and the Estonia-based gambling business Olympic Entertainment Group. Last year the investors gave BRG a mandate to wind up Novalpina’s fund and return money to them by selling the companies.

These investors include Abu Dhabi’s Mubadala Capital, Oregon’s public employee retirement system, Alaska’s $81bn permanent fund, two Yorkshire local government pension schemes and the pension fund of Centrica, parent company of British Gas.

Ares was the only lender to LXO, the two people said. A person familiar with Ares’ move said that after more than six months of uncertainty, and with a court battle taking place about the future control of the €1bn private equity fund, the group had decided it was in the best interests of its own investors to take control of the company.

Ares declined to comment.

BRG has previously said it has deemed NSO Group “valueless” to the fund’s investors, meaning they must pin their hopes of recovering cash largely on the sale of the Estonia-based casino operator OEG.

The fund had also bought bonds issued by air cargo handler WFS Global, Spanish pizza chain Telepizza and German amusement arcade operator Löwen Play, as part of a “credit for control” strategy, according to a witness statement filed by BRG executive Finbarr O’Connor. Most of that portfolio has now been liquidated for more than €30mn, the document said.



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