By Nick Harris
12 April 2010
Liverpool’s owners Tom Hicks and George Gillett will announce in the next few days that they have appointed investment bank Barclays Capital to find a “100 per cent buyer” to take the club off their hands, but have been warned by advisors that their price tag of £600m is too steep and that a more realistic valuation is £400m.
The installation of ‘BarCap’ as the “sole finders” of a buyer will end the long-term involvement of Rothschild and Merrill Lynch in the search for fresh investment.
Arriving along with BarCap will be the British Airways chairman (and ardent Chelsea fan) Martin Broughton, as non-executive chairman of Liverpool. His appointment should be ratified shortly, or, as one source said, “as soon as the ‘t’s are crossed and the ‘i’s are dotted, although it’s not fully signed and sealed yet.”
The rationale behind dumping Rothschild and Merrill Lynch is that neither have yet found investors to meet Gillett and Hicks’ requirements, and because they are too closely linked respectively to Gillett and Hicks. The Americans separately hired the banks, and according to one source “the new chairman [Broughton] wants a new bank he knows”.
Whether Broughton and BarCap can find anyone willing to invest huge sums of money is the $600m question that remains to be answered.
Liverpool’s managing director, Christian Purslow, has already tried and failed to meet self-imposed deadlines to bring in cash. Partly this was down to the unattractive proposition of asking an investor to take a minority stake alongside warring owners with financial problems.
Most recently the Rhone Group tabled a £100m bid for a 40 per cent share of the club and then walked away when their deadline passed without acceptance.
One thing in BarCap and Broughton’s favour is that a pressing deadline for repayment of £100m to RBS bank of Liverpool’s £237m debts is almost certain to become less pressing imminently.
Sportingintelligence understands that RBS is close to granting a six-month extension to repay that £100m, currently due on an unconfirmed date between now and the end of July. The extension will mean Broughton and BarCap effectively have until December to find a buyer. Barclays might have a role as Liverpool’s lenders at some stage but that is not envisaged short-term.
Hicks and Gillett have both privately accepted that for them to walk away completely is in the best interests of the club, although both would like to do so with some profit to show for their troubles.
They borrowed £298m to take over the club, or £174m for shares, plus fees of £11m, plus £113m to run it. Then extra spending, including investment in stadium plans, took the total debt towards £350m at one stage.
To abridge a convoluted story, Hicks and Gillett refinanced the debt last summer, reducing it to £237m, but have by now spent somewhere north of £100m of their own money between them (including c.£60m cash input as part of debt refinancing). It could be more. Purslow told the Spirit of Shankly group it was £130m.
Thus selling for £400m would allow repayment of the £237m bank debt, plus get them their £130m back, and leave them with around £33m profit between them (assuming £130m is right).
Selling for £500m would make them up to £133m profit between them, or selling for £600m would make a profit of up to £233m between them.
Sportingintelligence has asked what price the owners want, and how much profit they would settle for – i.e, we have asked Liverpool directly, as well as various financiers, PRs, advisors, bankers and spokespeople for the owners (and there are many of them, in several countries), and the owners directly – and no attributable answers have been forthcoming.
“They want ‘full value’,” said one source, speaking under condition of anonymity “and given that the pressure [from RBS] may be off slightly, this won’t be a fire sale.”
Again, what this actually means remains to be seen.
Nobody familiar with Liverpool’s situation doubts for a moment that with a new stadium built and in use, the club can become a tremendous and profitable business proposition (not unlike Arsenal), which in turn should underpin a resurrection in on-the-field results.
But as long as there is no new stadium, a lack of investment in the squad and the very real prospect of being displaced from the “Big Four” by the considerably richer Manchester City, a cycle of decline is possible. Liverpool’s biggest stars want Champions League football, not a “race” for fifth or sixth place.
Any new owner will need at least £400m to buy the club, somewhere between £300m and £400m for the stadium (probably offset by lucrative naming rights), and working capital to buy players, pay wages, cover debt repayment if the stadium money is borrowed, and, possibly, replace a manager who would cost some £16m to sack.
A billion pounds should cover it comfortably; £900m may be enough, for starters.