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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