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Wednesday
Nov112009

What's REALLY happening at Arsenal?

  

For those not interested in finance or unable to comprehend exactly what has been going on in the Arsenal boardroom over the past few weeks, I'll try and simplify it - because it's important.

On 15th October, number one shareholder and director Stan Kroenke swallowed up another 90 shares in Arsenal Football Club, taking his stake to 28.9%

On Friday, 6th November, Kroenke purchased another 200 shares, taking his holding to 29.9%.

Kroenke is now 71 shares away from triggering an automatic takeover bid for Arsenal Football Club. It would cost him just under $1 million dollars to purchase those remaining 71 shares.

Kroenke is certainly living up to his nickname 'Silent Stan'. At the recent AGM, when questioned on his long-term share-buying strategy, he said...... precisely nothing. Legally, there's probably not a lot he could have said, his appearance was purely political.

Meanwhile, the only other shareholder who could trump Kroenke is Russian business magnate, Alisher Burkhanovich Usmanov (aka Red & White Holdings). The 56-year-old owns 26% of the club, and is therefore only 4% away from making a mandatory offer for the remaining shares at the club.

In recent years, both men have been snapping up shares in Arsenal like Pacman, in what can only be described as a game of brinkmanship.

However, Stan is finding it much easier to buy shares - because people like Stan; they don't like Usmanov. I'm sure you've read the papers enough to know why.

Meanwhile, the rest of the Arsenal board plead their ignorance to exactly what's occurring.

Chairman Peter Hill-Wood did, however, make a laughable comment at last month's AGM. He said, "I don't think we are looking for a change in custodian" - even though 100 of the 200 shares Kroenke bought on 6th November were sold to him by Hill-Wood. He then exclaimed, "it's not for me to say what his [Kroenke's] intentions are".

Of course not Peter, you're only the Chairman!

Reading between the lines, it seems there can only be one logical conclusion. At 29.9%, Kroenke has taken himself up to the very edge of making a mandatory offer for the club. Arsenal don't want Usmanov taking control of the club, and have their ear to the ground. They know the name of every single shareholder of Arsenal Football Club - and would tap their phones if they could. 

Regardless, Kroenke can now take over the club in a nanosecond.

Usmanov is 4% behind in this horse race. The board obviously believe that there are enough weak sellers to cave in to Usmanov's demands should he offer any lily-livered shareholders enough cash; but 4% is still a substantial chunk of shares - especially when the Russian is likely finding 'friendly' shareholders a rare commodity.

It's a game of chess; any movement from the Russian and Kroenke is best positioned to say, 'checkmate'. Hill-Wood himself will probably sell Kroenke the remaining 71 shares if need be.

Meanwhile, the supporters look on, and to the layman it's fairly boring stuff, but there is certainly reason for concern.

Should Kroenke be forced to launch a formal takeover - and should it be fully accepted (it might get very ugly and messy with Usmanov unlikely to want to concede his 26% shareholding) - how would the American most likely raise the capital?

Well, at an estimated cost of £460m, Kroenke would likely have to take out a bank loan, dumping huge debts on the club, much in the same way as debt has been dumped on both Manchester United and Liverpool by foreign ownership.

Herein lies a warning.

Manchester United are one of the most profitables club in world football on earnings, yet all their profits are currently being wiped out by having to service their own rapidly increasing, rather enormous £700m debt. The club is paying off the interest but not the debt, which is doubtless the reason why United let go of Cristiano Ronaldo and Carlos Tevez in the summer.

It's an action that significantly harms their prospects of winning silverware this term, but crucially,  perhaps not enough to harm their ability to qualify for the Champions League and partake in its humungous revenue.

Regardless, they're on a slippery slope.

Liverpool are in a far worse predicament. Understandably, considering the current economic climate, the club struggled to renegotiate their £350m debt with Royal Bank of Scotland in the summer. They have half the debt of Manchester United, but are nevertheless under huge pressure to maintain their Champions League status. On top of their existing debt, failure to qualify for that competition would cost them in the region of £60m. Should they then choose to sack manager Rafael Benitez, they'd have to fork out another £20m to pay-off the 5-year contract the Spaniard only signed last year.

On top of the precarious nature of servicing such debt based on clubs' footballing success, make no mistake, European national football association UEFA is serious about phasing in financial constraints to stop clubs purchasing players using borrowed money. Real Madrid's ridiculous summer spending spree - based on debt - can only have exacerbated that requirement in the eyes of UEFA.

The ins and outs have yet to be decided/implemented, but it's clear that in future it is expected that clubs will likely be forced by UEFA to operate within their means; only able to spend money on wages and transfers through funds generated naturally via ticket receipts, merchandising, branding etc.

So where does this leave Arsenal?

If offered the choice, Arsenal supporters would doubtless prefer Kroenke take over the club to Usmanov, but debt is debt and Kroenke's dumping of a £460m bank loan on Arsenal Football Club is only the lesser of two evils.

However, the reason Kroenke is the lesser of two evils is because it's not 100% clear if the American does want full control of the club; he's being pushed into it by Usmanov's seemingly relentless desire to mount a hostile takeover; not that Kroenke's takeover would be any less hostile to supporters who want a say in the future of their club.

It seems the supporters have very little say/control over the matter; shareholders could turn down Kroenke's offer of taking over the club, but it's not yet sure whether that course of action is feasible or sustainable - the biggest shareholders will carry the biggest say.

Protests are unlikely to carry much weight in such matters, but the Arsenal Supporters Trust would be the first port of call for supporters who would like to keep tabs on the situation and offer their backing against a full takeover - should it ever be attempted.

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Reader Comments (32)

Kroenke cannot put his debt on the club unless he attains 75% of the shareholding.. you have not made this clear.. in other words Usmanov will have to sell him some of his shareholding at a minimum for this to occur..

November 11, 2009 | Unregistered CommenterJP

Oh dear, looks inevitable that Arsenal will be in a much worse financial position than we are now which ever person takes control. The only thing that will stop this madness is for the UEFA get tough and bang some heads together. European football clubs have to be forced somehow to spend within their income. The first and most important issues to tackle are players wages and purchase fees. If UEFA do not call urgent meetings with European football clubs and spell out the danger there can only be one outcome - clubs will start to go into receivership. Lemmings

November 11, 2009 | Unregistered CommenterMistaKen

The main reason there is huge distrust of Usmanov is the fact that he has stated that the firtst thing he will do is to demand dividends to be paid to shareholders. Which the board have not taken for the last 30 years. Meaining that, for the ignorant/uninitiated, they have put money into the club (notwithstanding capital gains on share value, whcih have only really accrued in the last 5 years), every year for the last 30. Which means that, having put nothing, not a penny into the club directly, Usmanov already wants to take money out. As, indeed, theany Manchester United supporting shareholder might. Although perhaps you weren't all aware of that...

November 11, 2009 | Unregistered CommenterClockEndRier

thanks for clarifying and I agree with most of what you say. koenke is stinking rich but if you believe what you read already owes existing board members alot of money for shares he bought. i think he will not risk his own money but will put debt on the club. if he goes over 30% he will get support from fellow directors and many shareholders to take him to 51% and will have such control of the club that it seems unlikely usmanov will stand in his way further as he will have no more incentive to be a shareholder and will never be able to become director or owner.

November 11, 2009 | Unregistered Commentersimont

i really think that whatever kreonke is doing is with the full backing of the club. why do i say this? firstly, wenger himself threatened to quit if usmanov takes over. secondly, look at the ease at which kreonke gets shares. thirdly, i think the reason why he didnt respond to that question is because he did not want usmanov to pull any drastic moves..in this light therefore, i am of the opinion that the rest of the club is using kreonke to prevent usmanov taking over..gooner 4 life.

November 11, 2009 | Unregistered Commentermarcus

MistaKen - It is not inevitable that Arsenal will be in a much worse financial position. There is no evidence to say that Kroenke will hang the debt on Arsenal. He has substantial wealth per se and has just sold one of his sports entities in the US, perhaps to raise funds for the acquistion. If he did do a Glazer, then we should be worried but, if that is his intention, I doubt if Hill-Wood would be so keen to sell him his shares. My guess is that the Board and Kroenke have hatched a plan for the future of the club, which probably involves them all and which maintains the core values of the club.

November 11, 2009 | Unregistered Commenteraj

Simont - I thought we established that Kroenke still owes money for shares he bought earlier for tax reasons. You say that you don't think he will risk his own money but how do you justify that statement? Do we know if Kroenke has hung huge debt on to the US sports clubs that he has bought? That should be a clue.

November 11, 2009 | Unregistered Commenteraj

I think I read that Kroenke has invested his own money in sports franchises before, but Arsenal is a completely different animal to Colorado Rapids or Denver Nuggets. It's a massive global brand, and very attractive at present to investors - especially with Wenger in charge.

Kroenke has a lot of valuable assets, so I would have thought it more easy for him to reduce his risk by securing a loan rather than putting his own money in - if of course it ever came to that, which is far from certain at present.

November 11, 2009 | Registered CommenterArsenal Truth

i am not surprised you have to moderate comments , the truth is that although i have tried to boycott your blog i have a masochistic urge that brings me back, i am still perplexed at whether there is a point to this particular story apart from a little unpaid? PR for red and white holdings. on one hand we have silent stan who has kept his mouth shut and on the other we have had a taste of just the sort of people that red and white are.. from the BBC interview to share issue furore to the use fo the daily rag to scare and harass public opinion against the current board. so far all that has proven baseless as the club have stuck with the self sustaining model and reaped handsomely. is it really justifiable to smear kroenke who seems to have the support of the board by suggesting these are both sides of the same coin?

November 11, 2009 | Unregistered Commenterugandan goon

I think you are negating to inform your readers of some important details here. Under company law, neither PHW or Kronke were allowed to talk publicly about any specific details of a takeover. If they had done so, even in the environment of an AGM, no trading of shares between parties would have been legally allowed for six months.

Personally speaking, I hope no more shares are traded and we can maintain our stable position, but I hardly think that any interested parties are going to jeapordise their own position just to satisfy the curiosity of the press or minor shareholders.

The current board (and I don't think this can be disputed) certainly have the best interests of the club at heart. If this were not the case I doubt that they would have so strongly opposed Usmanov's idea that all share holders should recieve a dividend. I say that what will be will be, but that as long as certain parties maintain even a minority interest in our club, it will continue to prosper.

Keep the faith.

November 11, 2009 | Unregistered Commentermattafc

@ Ugandan Goon: I moderate comments because, unlike your good self, certain people are incapable of posting messages constructively or are abusive. I want this to be a clean board open to people who want to read clean messages.

In response to you, I don't believe I have "smeared" Kroenke in any way. I'm simply commenting on the current situation - as some people haven't a clue - then predicting what the likely scenarios might be.

For the record, I am not a fan of Red & White Holdings, but neither do I wish Kroenke, or any shareholder, to gain FULL control of the club. I'd prefer a substantial percentage of shares to be withheld by shareholders who will always be able to question the club's decisions and put the club first - above making a financial profit for themselves.

At the end of the day, whilst Kroenke may be a good owner - assuming he ever gets the chance, I very much doubt he is interested in anything other than financial profit.

These things need to be considered, not just ignored.

November 11, 2009 | Registered CommenterArsenal Truth

Interesting article. For those of us who are completely ignorant to company law and shares and takeovers, ignorant to issues such as a 'saddling' of the club with debt a la Man U or Liverpool....can someone explain what is the most optimistic scenario for the Gunners heading into 2010 and beyond? Can we stay as we are/is a takeover inevitable/will any takeover leave us financially struggling with regards to transfers? etc.. Thanks

November 12, 2009 | Unregistered CommenterBobby

I guess the financial situation of the club could TECHNICHALY get worse, but in practice, it's already like we're taken over by a greedy investor wanting to use the club as a private ATM. I mean, our biggest and only signing this summer was Vermaelen (10 mill. pounds), while Adebayor and Toure went for 40 mill. Same thing the season before. The "major" signing was Nasri (20 year old kid), while both Flamini and Hleb went out the door. Huge amounts of money and playing quality is leaking out of the club (at least the part that the supporters care about; the squad), and in comes a cheap teenage "potential" who'll need 3-4 years to develop into something decent (if that ever happens).

How worse can it possibly get? Seriously...

November 12, 2009 | Unregistered CommenterBrady

Brady are you watching the same arsenal as me? We may have sold Adebyebye and Toure both inconsistent and nervous wrecks but we are ALOT more complete this year. Also Vermalean is settling very well and is clearly not going to take four years to settle.

I do really hope we are not bought by Usmanov we really do not need the instability that would bring.

November 12, 2009 | Unregistered CommenterMattj

Two points: First, Kranky is about to sell his 40% share in the St. Louis Rams (contrary to what another has written, this hasn't happened yet). This will bring several hundred million, so it is always possible that the Arsenal won't be saddled with that buyer's debt. Second, you should have mentioned that if one of these two attempts a takeover bid, they'll be required to offer the top price that they've paid for shares in the past six or 12 months (not sure which). This is why Usmanov is highly unlikely to attempt a takeover. I believe that it would be relatively easy for him to buy that last 4%, just by offering a premium. But that would then force him to buy the remaining 70% of the shares at that same premium, which just isn't going to happen.

November 12, 2009 | Unregistered CommenterBonnie Prince Charlie

very good post... and a pretty pessimistic future

but you should also mention another reason Usmanov is not welcome at Arsenal. His past!!

Craig Murray has some interesting info on this:

http://arsenalfootballnews.blogspot.com/2007/09/craig-murrays-article-one-censored-by.html

November 12, 2009 | Unregistered CommenterSig

Just wanted to add a comment to this, i have read somewhere that Silent Stan did talk to the AST with assurances that he would not saddle the club with debt like Man Utd's situation should he make the final move, and in fact i also believe he might actually be selling one of his American sports teams (possibly the Rams?) and this would provide him with a source of cash for the Arsenal takeover.

So dont start worrying too much yet, Wenger has been unexpectedly vocal about the takeover, and does not seem worried, hence we should place our faith in our team's management and board... for now.

November 12, 2009 | Unregistered CommenterGeneric Gooner

Nice summary, Arsenal Truth, I certainly concur with most of this. Some useful augmentations in the comment section, too.

Brady - your perspective is somewhat short term and also confuses several issues. Losing first team players in recent years has no doubt damaged the team, but to blame this on a lack of cash is misguided.

The departures of Diarra, Flamini and Gilberto over a 6 month period were clearly a managerial mistake, which we've taken almost two years to recover from. But our manager / Board chose to let them go, or lost them due to incompetence and bad decision-making (ie. not renewing Flamini's contract in time).

Other players have left, bluntly, because they're obnoxious, egocentric morons. Eg. our friend Ad*bay*r.

Others have left because our famous 2002-2005 team simply got too old (Vieira, Pires, Ljungberg, Henry, Sol...), and Wenger saw the need to give a new generation a chance.

While this transition has damaged our trophy-running in the short run, it has coincided with annual profits which stay within the club, and a massive revenue-generating new ground. This financial stability and strength will keep us in good shape for years to come--whereas many other big clubs are at the behest of dodgy individuals who could leave them in serious financial trouble.

It's for this reason that I agree with the article above. Plural ownership is the most healthy situation for our club.

November 12, 2009 | Unregistered CommenterJulian H

Two additional points need to be considered.
The assumption that Kroenke could raise loads to complete the purchase. The international financial meltdown has changed completely the scenario of raising unlimited debt even for the mega-rich. When Pool and Utd were purchased raising money was like taking candy from a baby and bankers (use W in place of B if you wish) were falling over themselves to finance all types of crazy deals.
Interest Rates are going to rise and rise significantly over the next 24 months and the ability of a loanee to meet this anticipated rise is a critical factor in getting loans. Existing property related debt on Arsenals books will seriously limit the loan security of the club for any debt based acquisition.
Bottom line I feel is that Kroenke will have to stump up a heck of a lot of cash rather than access debt to purchase the remaining shares.

November 12, 2009 | Unregistered CommenterJB

What you all seem to have forgotten as well is this.
If Stan, or anyone for that matter, stepped over the 30% share mark he has to bid for the rest of the shares - That we know.
What he doesnt have to do is offer a good price for them, i.e. if he offers just the face value of £1, nobody will want to sell to him. Also, no matter what he does offer, nobody is forced to sell the shares, so the most likely outcome is no great change.

November 12, 2009 | Unregistered CommenterBarndoor Bendtner

Good point Sig, the reason Usmanov is the greater 'evil' as it is suggested here is that he:
1) undermines the club with PR in the media - The Times and the BBC have been duped in the past - and lies through the press to try and give himself a more acceptable image (e.g. victim of corruption, family man)
2) his suggestions centre on taking money out of the club (dividends, share options)
3) he is a convicted criminal who has succeeded in the far from squeky clean economies of Russia, Uzbekistan and other ex-Soviet areas.

November 12, 2009 | Unregistered CommenterBuxton

As for Brady, I hope your name isn't a reference to Liam, because your tarnishing the name of an Arsenal legend.

You complain: 'How worse can it possibly get?'

Well, let's see - we could be playing poor football (how we miss the creativity of Hleb); we could be not scoring for fun (how we miss Ad*b*y*r); or we could be struggling for 4th place.

You make out like we're under some sort of financial constraints, but you're evidence is nonsense. Toure and Adebayor left because they wanted to earn ridiculous wages they don't deserve; Hleb had his head turned by his agent, like Anelka before him; and Flamini had a point to prove, believing Wenger had done him a disservice in waiting to offer a new contract.

'[I]n comes a cheap teenage "potential" who'll need 3-4 years to develop into something decent (if that ever happens).'

Vermaelen at £10 million? He took more like 3-4 days to prove he's an excellent player. Nasri at £11 million? Strong first season and, despite suffering injuries, people look forward to him returning straight into the first team already - not bad for 'cheap' potential.

And if what you're craving is some Champ Manager-style superstar, have you conveniently forgotten the £15 million signing of Arshavin last season?

November 12, 2009 | Unregistered CommenterBuxton

i think this pretty much summerises the situation. someone asked what would the best thing for arsenal be. from my point of view it would be for usmanov to piss off so kroenke is not forced to breach 30% and make an offer for the club. second preference is that should kroenke take over he resists attempting to take 100% control which would give supporters no voice. they wouldnt even have an agm to attend. the club needs to be able to clear its debt in a self sustained way so that it will be well placed to respond if uefa brings in various rules about clubs having to be self sufficient.

November 12, 2009 | Unregistered CommenterBkamp

This is scare mongering of the highest order and could have been written by R&W themselves

Ist If Kronke goes over 30% of shares he has to offer to buy at the highest price paid in the last year which is £10500, so he will wait for 4 or 5 months

2nd There is no suggestion, indeed it has been stated that no debt would be put on the club

3rd He has never leveraged money against his sports team in USA, he just markets them better and raises profits that way. He is also a sprots fan.

4th The ruski will take money out in the form of dividends, something that hasn't been done in over 35 years at Arsenal

5th The slaes of Toure and Adebayour were forced by the players, and isnt the squad happier as a result.

6th If Kronke does make a bid and is turned down he would have to wait a year before launching another one so he will do it, if he does it at all, when he is ready and certainly not when he has to pay £10500 a share

November 12, 2009 | Unregistered Commenterbergkampisgod

Good article. Perhaps this is why Kroenke is looking to sell his 40% ownership of the NFL team St. Louis Rams...to generate capital.

November 12, 2009 | Unregistered CommenterFA

Can anyone with proper insight into company regulation clearify whether
a) Must an offer be at minimum the highest price over the last 12 month or at the bidders disceretion? (Both has been claimed over the recent weeks)
b) Must a shareholder have at least 75 % to dump the debt onto the club as stated by JR in a comment here? (In that case Usmanov can be one of the most important figures in the history of the club)
c) How on earth is it possible for a developed country to have such a stupid rule? I work a lot with company law in Norway. Our legislation is very much based on EU standard and dumping the financing onto the company is totally unheard of-

November 12, 2009 | Unregistered CommenterAG

Re. Barndoor Bendtner's point that he could go over 30% and then make a derisory offer for the rest of the shares.

It doesn't work like that - you have to offer the highest price you've paid for a share in the last twelve months. If as a result of that bid you don't gain overall control (50% + 1 share), you have to sell back down to under 30% - you can't maintain a 30% or greater share holding. In the period where you own 30% or more of the shares but don't have overall control, your voting rights are limited to those you'd have if you owned 30%.

In terms of dumping the debt on the club, it's not clear whether Usmanov could block this but my understanding is not. Ultimately borrowing money and paying dividends would not be unusual business and would not require 75% of the shareholders to agree to it.

However privately Kroenke has indicated that he's not looking at a leveraged buyout (where you sink the club in debt) in any case.

As an aside Myles Palmer's piece on ANR is a shockingly inaccurate, misguided view of the situation. I advise people to ignore it.

November 12, 2009 | Unregistered CommenterTyrannosaurs

From the BBC:

TAKEOVER GUIDELINES

* Once someone reaches a 30% shareholding in a company they are deemed by the Takeover Panel to have "effective control" of the firm and must then make an offer for the remaining shares

* The price offered cannot be lower than the highest price the offerer has paid for shares in the firm in the previous 12 months

* If, after the offer has been made, the offerer has more than 50% of the shares they are deemed to have been successful in their takeover and legally in control

* If an offer is unsuccessful and the 50% shareholding level is not breached then the offerer cannot come back with another takeover attempt for 12 months, unless invited to do so by the company

(Note on the last point - if they don't get to 50% they'd have to then reduce their shareholding back down to 29.9%)

One other point: Someone has to reach 95% of the shares in the company before they can for the remaining shareholders to sell up and establish complete control.

November 12, 2009 | Unregistered CommenterTyrannosaurs

The 30% threshold is being misunderstood by nearly everybody everywhere.

Firstly, it is NOT imperative to achieve 30% shareholder before making a takeover bid.

In theory, you could have a 0% shareholding and still make an offer, it's an OBLIGATION (limited) to make an offer at 30%, not a requirement.

Secondly, a shareholder can exceed the 30% and merely declare that he or she has no desire at that point to mount a takeover, in which case they are precluded from making any offer for the rest of the shares for a set period (I think it's somehere between 6 months and 2 years.

That is how the shower up the road were 60% owned by ENIC without an offer being made to all shareholders.

November 12, 2009 | Unregistered CommenterMikeSA

I will not support a Kronke takeover unless it is done with cash. I want Stan to show us his cash - not his lines of credit. If Stan wants to do a Glazer or Gillette Arsenal F.C will be histrory.
Has no one realised why this country is in a financial mess - too much leverage, too much debt. Its killing us. ArsenalFC have no need for all this debt. MUFC LFC, Real Madrid - it will all end in tears. I do not want Arsenal to joint them. Dont forget Nat West RNS Lloyds Halifax GM etc are all insolvent. I dont think the Govt will bailout Arsneal FC if we get into trouble.

November 12, 2009 | Unregistered CommenterHitman

MikeSA

Re holding more than 30%. What you say isn't true.

Once you have 30% (or more) you have to make an offer for the rest of the shares at the maximum price per share you've paid in the last 12 months. The way you end up with a majority share holding without owning the whole company is that the other shareholders don't have to accept your offer.

So Kroenke might make an offer, Danny, Lady Nina and some of the smaller share holders might accept it but Usmanov and some of the others might reject it.

That would leave Kroenke owning, say, 70% of the club. At that point he has control over it and can broadly do what he wants with it, however the other 30% is still owned by others. That's what happened with Spurs.

November 13, 2009 | Unregistered CommenterTyrannosaurs

MikeSA - Sorry, one other thing. What you say about not needing a 30% shareholding to make a bid is however completely true, though in the case of Arsenal with Usmanov and Kroenke owning over half the club between them it would be difficult to make it successful without convincing at least one of the two of them to sell.

November 13, 2009 | Unregistered CommenterTyrannosaurs

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