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.
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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