How does a company cost £1?

WHO, WHAT, WHY?
The Magazine answers...

Symbolic proof of the exchange

How can a business with hundreds of buildings and thousands of employees only be worth £1?

The struggling furniture firm MFI, once worth £1bn, is now reported to be in take-over talks which could see the company sold for £1.

If this suggests that the company's prospects are now flatter than flat-pack, it's still only part of the story.

As well as this token price tag, the take-over by a private equity firm could also involve the seller stumping up for a multi-million pound "dowry" as an added incentive.

WHO, WHAT, WHY? A regular feature in the BBC News Magazine - aiming to answer some of the questions behind the headlines

But if the seller is considering handing over millions of pounds to the buyer, along with the portfolio of furniture stores, what's the point of charging a pound?

The token sum is a symbolic but important part of the contract, showing that "some consideration" has been paid. It needn't be a pound, it could be any sum, as long as it shows that something has been handed over in payment.

"It's the glue which binds the contract," says James Stonebridge, restructuring partner at law firm, Norton Rose.

"It used to be called 'peppercorn' - which was the nominal consideration for which a sale went through, which could be one pound, five pounds or whatever change someone had in their pocket," he said.

Chelsea FC for a quid

There are alternative ways of transferring ownership, he says, but in principle, the handing over of a pound is a sign of the taking over of ownership.

Nick Leeson brought down Barings

Such small purchase prices often happen when firms are in financial trouble - and buying the firm also means accepting responsibility for liabilities, such as debts.

"In these instances it's not about how much the price is, but where the liability will rest after the sale goes through - that's the key aspect of it," says Mr Stonebridge.

There have been previous high-profile examples of the company pound shop. Ken Bates bought Chelsea football club in 1982 for £1, while taking on debts of £1.5m.

When Barings bank collapsed, after the Nick Leeson rogue trader scandal, it was bought for £1 by the Dutch financial group, ING. And when German car company, BMW, sold Rover, the Phoenix consortium paid £10.

The fortunes following such sales can also vary sharply. When Ken Bates sold the club to Roman Abramovich in 2003, the deal was worth £140m, and Chelsea has gone on to premiership triumphs.

But a similar success story has so far eluded Rover.

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£1 for MFI? What a rip off. Back in my day I could have rode the bus into town, got a copy of the Beano and some chips, and still had change for the cinema.
Sam, Norfolk

The need for this arises from the odd doctrine of "consideration" in English law (which spread to other parts of the UK). It has never been a part of Scots Law. With no need for consideration you can bind yourself unilaterally and gratuitously if you wish. Indeed, this is why gazumping has not been a problem here. Once a sale is agreed and the contract concluded, both sides have legally enforceable rights.
Alisdair Matheson, Glasgow

Alisdair, you can bind yourself without consideration in English law using a deed, so this is not the reason why gazumping does not happen in Scotland. The real reason for that is because you sign a contract at the time of the offer in Scotland whilst in England it is standard to carry out all the searches and surveys before exchanging contracts.
Simon Armstrong, London

Buy MFI for a £1 but when you get it home you realise it is missing two screws, a bracket and some dowels. I hope they keep the receipt!
Ian, London

A greater source of intrigue is: what is a pound? Capitalism depends on agreement as to the value of a pound (or dollar or the value of a pound relative to a dollar) but I'm not sure knows what it is. I promise to pay the best answer on demand the sum of one pound, whatever that means.
Dave Worrall, Liverpool

When I was employed as a temp in the company who now run National Savings on behalf of the UK Government the multi-millon Pound contract had to be sealed with the exchange of £1. The lawyer present insisted that £1 was exchanged at the signing, but all that could be rustled up in change was 50p. Someone came out into the office and asked me if I could lend them 50p, which I did and the contract was signed. No one ever paid me back, does this mean I am entitled to half the profits on that contract?
Matthew Steel, Horsham

Why not sell it on Ebay I'm sure they could muster more than a pound doing that!!
Carl Kenyon, Manchester

A pound ! Any canny investor should wait a week. There's invariably going to be a 50% sale on, it being MFI.
Neil, London N2

I'll pay £1.50 - is it mine then?
Tim Haines, Evesham

For the sake of out-bidding Tim Haines, I'll offer £1.60 - now, can I have it delivered over the weekend, or do I need to fold the car seats down and struggle to push it in sideways?
Gareth Peate, Oswestry

Can I buy now and not pay a penny until September 2008?
John, London

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