Dipper Takeover? [Merged]

[super_city_si]

http://soccernet.espn.go.com/news/story?id=811527&sec=england&cc=5739

Confused again... shares must be worth something?


"The debt stands at around £350 million and at the moment the valuation is based on between 80p to £1 in the pound, but no more. In layman's terms the shares are worthless, and therefore there is no offer to the current shareholders."

Not necessarily. A business has a valuation that includes its assets and its liabilities. Where its liabilities exceed its overall value the shares are worth nothing and the debt a discount to its headline amount. Whenever a business goes into administration its shareholders get nothing and its creditors get [INSERT NUMBER LESS THAN 100] pence in the £.

I was looking at this before and concluded that Liverpool out of the Champions League and with severe question marks over its ability to qualify is worth much less than £350m. Realistically Liverpool should be valued (as an enterprise) at around 2-2.5x its turnover. Its turnover for a non-Champions League season will be approximately £100-110m. This is insufficient to make a significant profit (before player trading). The clubs history and global standing (including its ability to generate substantial sponsor revenues) increase the value of the club as does its highly sellable player assets (Reina, Torres, Mascherano, Gerrard and Kuyt in particular) but its low capacity and need for stadium investment counters this. In terms of assets, given it's property is in Liverpool this asset is of low value. I would say that the realistic range is therefore around £200-250m including the debt.

In English I am saying that the club is worth around the value of the RBS debt and, currently, the equity held by H&G is worthless. This could (and would) change if Liverpool surprised us all with a Champions League qualifying season but I really dont believe that is likely and H&G (and the potential buyers) will know this. Apparently Rhone Group bid £110m for 40% in December when they could have qualified for the Champions League. This makes my £200-250m valuation about where they saw it too.

Aside from Champions League qualification and success there is very limited medium term upside here. Even if you manage to build a 60k stadium and fill it (easier said than done in Liverpool in a recession) you still have the burden of repaying the build cost. This has hampered even Arsenal despite massive net trading profits, real estate in one of the best areas of London and 60,000 fans paying the highest average price outside of Chelsea.

In summary, Liverpool have major major problems that wont go away unless UEFA fix it for them to be a regular player in a Super League or Champions League. The clock is ticking on this Club and only an imminent explosion at Chelsea, our place or United can save them. Arsenal are bombproof in the long term given the size of the stadium and its Central London wealthy customer base.

Thanks for a concise and easy to follow summary. great post :)

 

[Marvin]

SSN reporting that Liverpool board have informed Premier League of takeover approach.

Whether this is just standard procedure I don't know.

Morale at Liverpool will be rising.

 

[Braggster]

H & G will have most if not all of the shares and that's what counts.

H&G apparently signed a document giving the casting vote (regarding any take-over bids) to Broughton

Apparently so, though as ever it's the precise terms that matter.

Even if true it's a risky strategy for the bank to use that route to force HG to sell because presumably there will be some objective standard by which a sale is judged-"best interests of the club" may be interpreted as best interests of its shareholders, unless they can conclusively demonstrate the value breaks in the debt. Now, in my view it almost certainly does, but persuading a court of that in a context where no interest payments have been missed is a big leap of faith. Particularly in a context where purportedly out of the money interests are more willing to take legal action over valuation.

My experience is that banks-especially big name ones like RBS-don't like that litigation risk. They get very edgy over borderline valuation calls. So I would be surprised to see that power actually exercised.

 

[slbsn]

H&G apparently signed a document giving the casting vote (regarding any take-over bids) to Broughton

Apparently so, though as ever it's the precise terms that matter.

Even if true it's a risky strategy for the bank to use that route to force HG to sell because presumably there will be some objective standard by which a sale is judged-"best interests of the club" may be interpreted as best interests of its shareholders, unless they can conclusively demonstrate the value breaks in the debt. Now, in my view it almost certainly does, but persuading a court of that in a context where no interest payments have been missed is a big leap of faith. Particularly in a context where purportedly out of the money interests are more willing to take legal action over valuation.

My experience is that banks-especially big name ones like RBS-don't like that litigation risk. They get very edgy over borderline valuation calls. So I would be surprised to see that power actually exercised.

There is no litigation risk - honestly this is a red herring. RBS have no duty of care to anyone but their shareholders. They will act in accordance with the terms of the loan to Liverpool. Its already been made very clear that at this stage any enquiries directed to them have been passed to Barclays Capital (Liverpool's financial adviser). This is very nice of them and probably gives an indication that they are fairly relaxed about the overall scenario at the moment. This is logical given the fact that even if H&G walked away, RBS would be able to manage the situation to recover all or most of its money. I don't think Liverpool is an attractive long term proposition but I do think it will be a big, big club for many decades yet.

As for H&G handing over all decisions to the rest of the board, the only way that is true is if they have effectively conceded their shareholding is worthless. I very much doubt it and Broughton will still have a fiduciary duty to the shareholders now - ie H&G.

 

[Marvin]

Liverpool are one of the biggest names in World football and they are vulnerable to a takeover, but it only makes sense for a wealthy institution to take them on, because of the ongoing costs.

Politically it would be very attractive for Far East investors with political connections who would be looking for the same type of political return as our owners

 

[Braggster]

I disagree. It obviously all depends on the terms of this supposed power Broughton has to enforce a sale in certain circumstances. If it exists, I highly doubt he will have total discretion-he will have some form of duty to the shareholders to make a fair determination. That will inevitably bring into play the issue of valuation.

To put it in context, on a deal I was recently working on we anticipated a legal challenge from a shareholder whom we believed to be out of the money by a significant margin.

Obviously if RBS (or their agents) don't use such a power and simply enforce under the loan documentation then there has to be a breach (which there isn't at this point) and they would either enforce the security (unlikely) or appoint an administrator (more likely).

That is all getting rather hypotheticalthough.

 

[persvenality cult]

Apparently so, though as ever it's the precise terms that matter.

Even if true it's a risky strategy for the bank to use that route to force HG to sell because presumably there will be some objective standard by which a sale is judged-"best interests of the club" may be interpreted as best interests of its shareholders, unless they can conclusively demonstrate the value breaks in the debt. Now, in my view it almost certainly does, but persuading a court of that in a context where no interest payments have been missed is a big leap of faith. Particularly in a context where purportedly out of the money interests are more willing to take legal action over valuation.

My experience is that banks-especially big name ones like RBS-don't like that litigation risk. They get very edgy over borderline valuation calls. So I would be surprised to see that power actually exercised.

There is no litigation risk - honestly this is a red herring. RBS have no duty of care to anyone but their shareholders. They will act in accordance with the terms of the loan to Liverpool.

Its already been made very clear that at this stage any enquiries directed to them have been passed to Barclays Capital. This is very nice of them and probably gives an indication that they are fairly relaxed about the overall scenario at the moment. This is logical given the fact that even if H&G walked away, RBS would be able to manage the situation to recover all or most of its money. I don't think Liverpool is an attractive long term proposition but I do think it will be a big, big club for many decades yet.

As for H&G handing over all decisions to the rest of the board, the only way that is true is if they have effectively conceded their shareholding is worthless. I very much doubt it and Broughton will still have a fiduciary duty to the shareholders now - ie H&G.

(supposedly) They only gave him a casting vote over which offer to accept. On his own he is only one out of three so they've not really done anything that could be construed that way, IMO.

 

[slbsn]

I disagree. It obviously all depends on the terms of this supposed power Broughton has to enforce a sale in certain circumstances. If it exists, I highly doubt he will have total discretion-he will have some form of duty to the shareholders to make a fair determination. That will inevitably bring into play the issue of valuation.

To put it in context, on a deal I was recently working on we anticipated a legal challenge from a shareholder whom we believed to be out of the money by a significant margin.

Obviously if RBS (or their agents) don't use such a power and simply enforce under the loan documentation then there has to be a breach (which there isn't at this point) and they would either enforce the security (unlikely) or appoint an administrator (more likely).

That is all getting rather hypotheticalthough.

No interest in turning this into an esoteric legal discussion but Broughton isn't an agent of the bank and I have never believed that RBS has some sort of ability to force a sale at this stage. As you say there isn't a breach.

You seem to be talking about a case where a minority shareholder was prejudiced or where directors breached their fiduciary duty. That isn't the case here. We have a major bank in BarCap running a very public auction (its hard to say that any potential bidder anywhere in the world doesn't know Liverpool is for sale) and no minority shareholders to prejudice. The highest bidder wins.

I don't agree re enforcing a security btw. This is more or less what Lloyds did at Rangers until David Murray was able to put his finances in order. Lloyds took effective control, put their team in and started a sale process. Politically, putting Liverpool into administration is never going to happen and given the points loss would destroy value rather than protect it.

 

[S04]

Liverpool are one of the biggest names in World football and they are vulnerable to a takeover, but it only makes sense for a wealthy institution to take them on, because of the ongoing costs.

Politically it would be very attractive for Far East investors with political connections who would be looking for the same type of political return as our owners

You got me a bit confused now, a far east investor in say China..what kind of political return would he get there?
That said Huang works in the US so the plot thickens.

Our owners are a ruling family where as China is a one party hegemony really.

 

[THEBLUEDONKEY]

I also have a question, a lot of talk about the need for a new stadium .. just how much of a pressing issue is this for prospective owners and for what reasons ? i understand anfield could do with a makeover but what's to say they cant just give it a spruce up and stay there for the foreseeable or is there some sort of legal reason etc .. thanks