LFC INSIGHT: How Liverpool FC ended up in American hands
Feb 5 2008Liverpool FC spent years scouring the world for investment before the arrival of Tom Hicks and George Gillett a year ago this week. On day two of a three-day special report, David Bartlett looks at how the deal was done
IT IS often assumed that members of the Moores family (by their annual inclusion in the Sunday Times Rich List) have an endless supply of cash.
There is no doubt that David Moores, former Liverpool FC chairman and nephew of the late Sir John Moores, is a wealthy man.
And while he certainly did not drain the club of money, Moores’s Littlewoods-accrued fortune was not enough to allow the level of investment needed in his beloved football club to give it Chelsea of Manchester United-style wealth.
And so it was that in March 2004, Liverpool FC hired finan-cial advisors Hawkpoint Partners to start a world-wide search for investors.
The search would take Moores and club chief executive Rick Parry to all four corners of the globe, sometimes to embarrassing effect. At an early stage of dealing with former Thai Prime Minister Thaksin Shinawatra, who now owns Manchester City, the pair went to Thailand with Keith Clayton, a club director and Moores’s accountant.
They were invited into one room to talk, and then into the next and unwittingly found themselves in a most unwanted press conference.
Talks with Shinawatra stalled in summer, 2004, with a sigh of relief from many fans far from enamoured with his human rights record.
Robert Kraft, who owns American Football team the New England Patriots, was also courted while multi-millionaire Liverpool FC shareholder Steve Morgan was keen to take a controlling interest.
Club officials first met George Gillett, now co-owner with Tom Hicks, in August, 2006, after the club had been chasing the investment group of the Dubai government, Dubai International Capital (DIC), for about two years.
“He was not taken terribly seriously at that stage, but those who met him thought he was a nice man,” a source told the Daily Post.
In the autumn of 2006, frustra-ted with the prevarication of DIC in making an offer for the club, Parry and Moores travelled to Montreal, Canada where Gillett showed the pair his ice hockey team the Montreal Canadiens.
A source said the pair were impressed but continued dialogue with DIC.
On December 6, 2006, Moores decided to go with DIC and the company was named preferred bidder.
The parties agreed to a period of exclusivity which ended on January 19, 2007.
IT IS clear, though, that Gillett did not give up at that stage, and Companies House records show that Kop Football Limited, the holding company through which he and Hicks own the club, was incorporated on December 18, 2006.
The DIC offer on the table was to buy at £4,500 a share, but a source said that club officials became frustrated with the company’s “dithering” over carrying out due diligence.
A DIC briefing paper was leaked which detailed an “exit strategy” and their intention to sell the club at a profit in the future. When this was revealed and faxed to Rick Parry from the Daily Post and Echo building, the tide had gone against the company, said the source.
According to a source there was a secret meeting at the Marriott Hotel at Canary Wharf, London where Gillett came in with an offer of £5,000.
“George was running the deal, but he didn't have the money, so he brought Tom Hicks in,” said the source.
DIC had withdrawn from the process and on January 30, 2007, the club board met and agreed to accept Hicks and Gillett’s offer.
Moores, who owned 51.5%, made almost £90m, Granada (or ITV Productions) pocketed around £18m, Radio City founder Terry Smith made £1.5m, former director Noel White £1m, and Steve Morgan about £8.7m.
Rick Parry was also paid a £500,000 completion bonus on top of his £500,000 salary.
Hicks and Gillett paid £174.1m for the club’s 34,800 shares, and also took on £44.8m of debt.
The controversial £350m refinancing package concluded last month – which has so angered fans – paid off the initial loan used to buy the club but loads both Kop Holdings and Liverpool FC with debt. It did, however, see Hicks and Gillett dip into their own pockets for the first time, with a joint investment of around £40m.
“Paradoxically about 70% of what they have done is good,” said a source. “What they have got dis- astrously and consistently wrong is the public presentation of it.”
First there was the new sta-dium, unveiled last summer with great fanfare but sent back to the drawing board in December.
Then there was Hicks’s public admission that Jurgen Klinsmann had been lined up as a possible replacement for manager Rafael Benitez. And then the refinancing package that included £105m of debt on the club’s books.
“Now there is a huge chasm between the owners and the fans,” said a source. “They just don’t understand The Liverpool Way.
“We have different standards and expectations to other clubs – and rightly so.”
davidbartlett
LFC ONE YEAR ONE: The stockbroker's view by Neil Blankstone
A LOT has transpired in the 12 months since Messrs Hicks & Gillett took over LFC.
Dubai International Capital (DIC) was in the driving seat in November 2006, having secured an agreement in principal with the majority shareholder David Moores to takeover the club.
Then, at the “11th hour” George Gillett finally found a business partner, Tom Hicks, enabling them to table the same offer as DIC.
David Moores felt morally obliged to consider not only the other shareholders but also the supporters and as a result requested of DIC 24 hours to consider matters.
DIC felt this had broken the agreement and walked away from David Moores (but not LFC!) leaving only the American offer on the table.
With the costs of the proposed new stadium development rising almost daily, a deal was quickly struck, the Americans taking full control by April 2007.
Initially, the deal was not structured in the same way as the Glazer takeover of Manchester United ie loading the club with debt.
It was recognised that a refinancing of the loans taken out to cover the initial transaction and the whole of the clubs financial base would be reorganised within a fairly short space of time.
A well-documented deal has been struck with banks Royal Bank of Scotland and Wachovia that appears to have been split in three parts:
£105m of debt directly onto Liverpool’s books
£185m by KOP Football Limited
£60m of personal guarantees by Hicks and Gillett.
All of this was negotiated at the height of turmoil in the world’s financial markets and whilst the exact terms of the deal are not known, one of the reasons it probably took until the last minute to complete the refinancing is the volatility in market rates.
It would also appear that David Moores and Rick Parry, who remain on the board of the Kop Holding Company, had concerns as to the placing of too much debt on the club’s balance sheet.
The banks appear to have insisted on total agreement at board level, hence the structure of the loans.
Is the debt serviceable? In the last 12 months two significant television deals have been completed.
Domestically, although Sky lost its exclusive rights the rights still exceeded the previous deal. Probably more importantly, the International rights to Premier League games saw the same price achieved as the last round of domestic rights.
That alone means an even greater audience will now be reached adding to the potential for increased marketing activity.
LFC has also launched its TV channel on the Setanta Sports network, whilst an overhaul of its website has seen the number of visitors increase materially.
The team is also expected to continue to challenge for the game’s top honours. Qualifying for the European Champions League is important (preferably reaching the last 16 as a minimum – anything beyond that being a substantial bonus), but missing out twice in a five-year period would not be a complete disaster (although two consecutive years would put a strain on cash flow).
All of this, however, means that even an annual interest bill reported at £30m per annum should be manageable.
There is also the matter of the new stadium. The merchandising of LFC through the new mediums needs to be undertaken alongside this.
An extra 20,000-25,000 people attending 18 league matches a season would generate additional £10.8m- £13.5m revenue per season.
Add Champions League matches to that and you can see the difference.
Meanwhile, the rumour mill continues in full swing that Liverpool may be subject to a further change in ownership.
As stated above DIC did not walk away from LFC and it would appear that Tom Hicks did offer them a 15% stake.
It his partnership with George Gillett that is most under scrutiny and as always it then comes down to valuation.
With the extra revenue and despite much work to be done with regard to the new stadium, as well as the increased debt, it is clear that LFC is worth more today than it was 12 months ago.
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LIVERPOOL Football Club, ყველაზე ტიტულოვანი ინგლისური გუნდის ფანკლუბი,VOL10
