Hicks & Gillett v Royal Bank of Scotland
Sat, 9 October 2010Hicks and Gillett appear to value the club at £600 million.
About £440 million would appear to be the break even for them:
“In fact, they may have to write off about £140m if a reported sale of about £300m goes through.”
Would any owner of any substantial asset allow the asset to be forcibly sold with a sizeable loss to himself without putting up a fight?
I have no sympathy for Hicks and Gillett, but increasingly, notwithstanding the conceptual difficulties (of having less than no sympathy), I have even less sympathy for the Royal Bank of Scotland.
Clearly, the bank miscalculated when it agreed to finance the leveraged purchase of Liverpool (as did Hicks and Gillett in buying Liverpool). The bank’s incentive to do so would have been the substantial interest and fees it would have earned. In the case of Hicks and Gillett the motivation would have been the subsequent sale of the club at a higher price. They could not possibly have seen themselves making a profit in the short to medium term could they? In both cases, the miscalculation was the result of greed.
Payments on the loans are overdue. As the loan to the holding company is secured against the shares in the football club, RBS could enforce its rights and sell the shares. However, such a forced sale carries two risks for RBS: (i) the bank may be under a duty not to realize the shares at an undervalue, failing which, it may be liable to the owners for any shortfall; and/or (ii) the sale price is likely to be significantly lower in a forced sale, with the risk that RBS doesn’t recover what is owed to it in full.
Instead the bank gave Hicks and Gillett further extensions of time, based on certain conditions including:
- appointment of an independent chairman of the holding company (Martin Broughton) to oversee the sale of the club.
- Hicks and Gillett agreeing to a “reasonable” sale of the football club.
Hicks and Gillett get more time (effectively, extra rope with which to hang themselves), RBS get a sale through with less risk to themselves, and with a better prospect of recovering all sums owing.
Repayment of the loan in full, plus substantial interest and fees for RBS, Gillett and Hicks about £140 million out of pocket – RBS wins.
In the Liverpool Echo in July:
“Liverpool FC borrowed too much cash, says boss of RBS
….
Don’t banks have any responsibility?
It is not uncommon for aggressive banks to lend more to riskier borrowers in order to earn higher interest. As long as the interest is being serviced, it looks good on the books, and bank officers earn higher bonuses, with every prospect of those who negotiated the loan being regarded as high flyers to be “poached” within a couple of years by a competing bank at even higher salaries and bonuses (well before the loan starts to unravel).
The borrower faces insolvency if it doesn’t pay.
The bank earns high interest for a few years at least (during which time, higher bonuses are paid), and when the borrower finally defaults, the new team at the bank just write off any losses. If the hit is too much for the bank to take, it can always count on the government to pump in taxpayers money.
If Hicks and Gillett know that they are going to be losing about £140 million in any event, they may well be trying to give RBS a bloody nose on their way down.
(Adapted from two posts on Tony’s Non-League Forum – 1st & 2nd)
If you need leverage
To buy a football club
Be very afraid of the sharks
All they care about
Is a higher yield
Dollars, pounds, euros, francs, leave no marks
Go on, pay the fees
Go on, interest too
As your dreams are tossed and blown
Go on, go on, and soon you will learn
That you’ll never want a loan
You’ll never want a loan
You’ll Never Want A Loan
Hicks and Gillett take on RBS in court today, with the spectre of a rival bid in the background.
How is Liverpool to be valued? According to Forbes:
£300 million looks way off the mark. 8 times revenue would get us to about £280 million? Plus assets (property and players) worth about £200 million? £480 million would give Hicks and Gillett a small profit.
Hicks and Gillett may not be behind the resurrection of the rival bid, but it clearly aids their cause.
Live coverage on guardian.co.uk.
Mill Financial have stepped into Gillett’s shoes.
And a new £320 million bid crawls out of the woodwork.
The chorus has been copied elsewhere:
http://www.yellowfever.co.nz/forum/forum_posts.asp?TID=1602&PID=577313#577313
A conspiracy claim in Texas – now it really gets interesting. [:)]
While the English High Court reached its decision largely on the application of principles of contract law, there was hardly any reference to principles of company law, at least not in the media reporting of the case.
Directors should be acting in the interest of a company as a whole, and not just the party that procured their appointment. Unfortunately, in law, “a company as a whole” includes shareholders and creditors, but not customers (in this case, the fans).
Now we have the tort of conspiracy thrown in for good measure.
The allegation that “RBS has informed investors that it will approve of a deal only if there is “no economic return to equity” for Messrs. Hicks and Gillett” is very remarkable – hard to believe it’s true though.
Broughton is back in the High Court today, presumably to seek an anti-suit injunction against Hicks / Gillett.