NUFC - A leveraged buyout?

[Hughesy]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

[Dave]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

[Matt]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

He may well have overlooked it because it was clear he paid no attention to the purchase and just fancied spending a few quid. In normal circumstances though, you would assume you have to pay it back and then change plans on the off-chance you don't.

[themanupstairs]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

Not sure what's being implied in the above post, but I reckon you're right. Speaking to a corporate lawyer mate of mine about this the other day, and he thinks there's no chance Ashley didn't know about the immediate repayments, should control be wrestled away from SJH. He may have not done enough dd before making the offer to know the structure and nature of the debts, but he should have certainly known the big picture of what he was getting himself into in terms of the quagmire that was the way we operated back then.

[cubaricho]

Interesting thread, most of which has gone over my head.

[Stu]

http://www.davidwygant.com/blog/wp-content/uploads//89524.jpg

[S.S.R.]

 

Interesting thread, which most of has gone over my head.

 

Quick synopsis for anyone who can't be arsed to decipher it; Mike Ashley may be acting out of self interest.  In other news,  dogs bark,  cats meow and McDonalds may be fattening.

[ChezGiven]

Quayside, if the debt held in the holding company is not owed by the club itself then why is it being paid down? The £138m figure owed to MA by SJH Ltd in 2008 reduces to £132m in 2009. How and why?

 

I really hadn''t thought that there had been any reduction in any of the sums owed to Ashley in the published info. But I'll have a look at the accounts tomorrow and get back with an answer.

 

In the OP.

[cubaricho]

 

Interesting thread, which most of has gone over my head.

 

Quick synopsis for anyone who can't be arsed to decipher it; Mike Ashley may be acting out of self interest.  In other news,  dogs bark,  cats meow and McDonalds may be fattening.

 

See, to me it seems like he's acting only acting out of self-interest in a backhanded way.  He got in way over his head, for much more than he originally thought, and now is working to make the club seem a more attractive option to potential buyers because he wants out.  He may make some pretty bad football decisions (which he shouldn't be making in the first place) but his business sense is shrewd, even though his buying of the club was not.

[SLK]

Why do people persist with the notion that the club owes Ashley for the money he spent to acquire it?

Because the club needs to be viable financial entity capable of running itself by itself without outside help. The club can not continue to be forever Mike's money pitt.

 

That's not what he said. He's talking about acquisition costs, not running costs.

It doesn't matter what cost it is, at the of the day that's how much the club is in debt and needs to make profit every year so as to reduce the debt and hopefully one day be debt free.

 

In summary the club is a business and it needs to be profitable to stay open for business.

 

Did you even read my post?

I thought I did but if I miss understood your post then please tell me why ?

 

The money he spent to acquire the club is gone, he doesn't get that back unless he sells and only then if someone is willing to give him back what he paid (or more). The club doesn't 'owe him' that money at all, but people mention it as though it does, including it in the amount he's spent on the club as though we should be grateful for it.

 

Again, I'm talking purely about the acqusition cost in this instance, nothing else.

Of course the club owes him every penny he spent on it. What do you think the club is a toy ? The club is a bussines unit like sportsdirect is another of his bussiness units except that nufc is currently still in the negative financially and it's to start making money and paying it's debt off to the lender who is Ashly.

[Taylor Swift]

Ashley has so far invested 280m in the club, half of which was to acquire it, the other half to cover its losses over the past four years. Like Dave has said, the 140m used to acquire it was his own choice. I don't think the club or the fans should feel grateful that he took us over, since our feelings are determined by what happens on the pitch, and not off it. Now let's take a look at the other 140m. Half of that was the stadium expansion loan, which the club would have, in my opinion, been able to pay off gradually since the whole principal wasn't due for a good number of years. We would have been able to sustain ourselves. The other half - around 70m - is what Ashley has actually covered, and what I think would have put us in trouble if he didn't take us over. However, more than half of it was losses that occurred due to relegation, which was completely Ashley's own fault for not realizing the weaknesses in our squad and for the ridiculous four managerial changes in that horrible season. A conservative estimate is that relegation cost us 20-30m (revenue declined by 50m or so but that was balanced out by about 20m in outgoings and a reduction in the wage bill, IIRC). So, actually, what we should be grateful for is about 20-30m. Not much. It's still a sizable sum. But it's not much.

[Hughesy]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

It would be impossible to overlook if you looked at the loan documentation in the first place.  One of the first things a finance lawyer would do in a due diligence exercise would be to look for exactly that kind of provision.  It would be beyond negligent for a lawyer not to look for a change of control clause or not pick up on it because it can obviously make a huge difference to any acquisition and the funding required.

 

But if Ashley didn't do any DD, as we are led to believe, and didn't get lawyers to look at the loan documents - then it is conceivable that he wouldn't have known about it.  However, nearly every loan document in the world has some form of change of control clause in it..

 

However (apologies for labouring this point), I find it very strange that Ashley would actually buy NUFC without doing any DD at all.  It's a very very risky and strange way to do business.

[Dave]

Ashley has so far invested 280m in the club, half of which was to acquire it, the other half to cover its losses over the past four years. Like Dave has said, the 140m used to acquire it was his own choice. I don't think the club or the fans should feel grateful that he took us over, since our feelings are determined by what happens on the pitch, and not off it. Now let's take a look at the other 140m. Half of that was the stadium expansion loan, which the club would have, in my opinion, been able to pay off gradually since the whole principal wasn't due for a good number of years. We would have been able to sustain ourselves. The other half - around 70m - is what Ashley has actually covered, and what I think would have put us in trouble if he didn't take us over. However, more than half of it was losses that occurred due to relegation, which was completely Ashley's own fault for not realizing the weaknesses in our squad and for the ridiculous four managerial changes in that horrible season. A conservative estimate is that relegation cost us 20-30m (revenue declined by 50m or so but that was balanced out by about 20m in outgoings and a reduction in the wage bill, IIRC). So, actually, what we should be grateful for is about 20-30m. Not much. It's still a sizable sum. But it's not much.

 

That's how I see it.

[Zero]

Quayside, if the debt held in the holding company is not owed by the club itself then why is it being paid down? The £138m figure owed to MA by SJH Ltd in 2008 reduces to £132m in 2009. How and why?

 

I really hadn''t thought that there had been any reduction in any of the sums owed to Ashley in the published info. But I'll have a look at the accounts tomorrow and get back with an answer.

 

In the OP.

 

Was the 138m included in NUFC's own balance sheet?

[Dave]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

It would be impossible to overlook if you looked at the loan documentation in the first place.  One of the first things a finance lawyer would do in a due diligence exercise would be to look for exactly that kind of provision.  It would be beyond negligent for a lawyer not to look for a change of control clause or not pick up on it because it can obviously make a huge difference to any acquisition and the funding required.

 

But if Ashley didn't do any DD, as we are led to believe, and didn't get lawyers to look at the loan documents - then it is conceivable that he wouldn't have known about it.  However, nearly every loan document in the world has some form of change of control clause in it..

 

However (apologies for labouring this point), I find it very strange that Ashley would actually buy NUFC without doing any DD at all.  It's a very very risky and strange way to do business.

 

http://www.independent.co.uk/sport/football/premier-league/mort-brings-sea-change-to-tone-of-business-on-the-tyne-460911.html

"I'd rather keep it broad. I just think the financial position of the club is not as strong as we hoped it might be. But that in itself has not held back our investment on the playing squad and it's something that we'll deal with. We did the typical due diligence one would do on a public takeover. There is no sense that anyone has tried to mislead us."

 

[Zero]

Ashley has so far invested 280m in the club, half of which was to acquire it, the other half to cover its losses over the past four years. Like Dave has said, the 140m used to acquire it was his own choice. I don't think the club or the fans should feel grateful that he took us over, since our feelings are determined by what happens on the pitch, and not off it. Now let's take a look at the other 140m. Half of that was the stadium expansion loan, which the club would have, in my opinion, been able to pay off gradually since the whole principal wasn't due for a good number of years. We would have been able to sustain ourselves. The other half - around 70m - is what Ashley has actually covered, and what I think would have put us in trouble if he didn't take us over. However, more than half of it was losses that occurred due to relegation, which was completely Ashley's own fault for not realizing the weaknesses in our squad and for the ridiculous four managerial changes in that horrible season. A conservative estimate is that relegation cost us 20-30m (revenue declined by 50m or so but that was balanced out by about 20m in outgoings and a reduction in the wage bill, IIRC). So, actually, what we should be grateful for is about 20-30m. Not much. It's still a sizable sum. But it's not much.

 

I remember there's a report that if Ashley didn't bought the club, we are heading for Administration very soon.  That's the reason why Freddy Shepherd hire Sam Allardyce - to run the club at a very low cost because we were in deep deep trouble.

[Hughesy]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

It would be impossible to overlook if you looked at the loan documentation in the first place.  One of the first things a finance lawyer would do in a due diligence exercise would be to look for exactly that kind of provision.  It would be beyond negligent for a lawyer not to look for a change of control clause or not pick up on it because it can obviously make a huge difference to any acquisition and the funding required.

 

But if Ashley didn't do any DD, as we are led to believe, and didn't get lawyers to look at the loan documents - then it is conceivable that he wouldn't have known about it.  However, nearly every loan document in the world has some form of change of control clause in it..

 

However (apologies for labouring this point), I find it very strange that Ashley would actually buy NUFC without doing any DD at all.  It's a very very risky and strange way to do business.

 

http://www.independent.co.uk/sport/football/premier-league/mort-brings-sea-change-to-tone-of-business-on-the-tyne-460911.html

"I'd rather keep it broad. I just think the financial position of the club is not as strong as we hoped it might be. But that in itself has not held back our investment on the playing squad and it's something that we'll deal with. We did the typical due diligence one would do on a public takeover. There is no sense that anyone has tried to mislead us."

 

 

In that case - I have no idea how Ashley could not have known about the change of control clause.  Doesn't make any sense whatsoever.

[ChezGiven]

Quayside, if the debt held in the holding company is not owed by the club itself then why is it being paid down? The £138m figure owed to MA by SJH Ltd in 2008 reduces to £132m in 2009. How and why?

 

I really hadn''t thought that there had been any reduction in any of the sums owed to Ashley in the published info. But I'll have a look at the accounts tomorrow and get back with an answer.

 

In the OP.

 

Was the 138m included in NUFC's own balance sheet?

 

No, 'Gross debt' but its the reductions in this debt that caused me to post this. Who is paying down this debt, from which sources and why? If its club money, then its not a LBO but not far away in principle.

[quayside]

Quayside, if the debt held in the holding company is not owed by the club itself then why is it being paid down? The £138m figure owed to MA by SJH Ltd in 2008 reduces to £132m in 2009. How and why?

 

I really hadn''t thought that there had been any reduction in any of the sums owed to Ashley in the published info. But I'll have a look at the accounts tomorrow and get back with an answer.

 

In the OP.

 

I saw the OP but the bit about debt reducing doesn't ring any bells with me so I will check it out. Also fwiw I don't like the way the table in the OP presents gross debt including the cost of the club, especially as it appears to refer to St James Holdings in 2005 and 2006 when the company did not exist. 

[Unbelievable]

Our debts have quadrupled in 4 years. I'd say it's very arguable we're better off financially..

 

Not so. Our debt has doubled since June 2007. We are better off financially simply because of who we owe the debt to not because of the amount of the debt. See Everton for a current example of what I'm getting at.

 

So, by your definition, what is the club's debt position atm?

[quayside]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

It would be impossible to overlook if you looked at the loan documentation in the first place.  One of the first things a finance lawyer would do in a due diligence exercise would be to look for exactly that kind of provision.  It would be beyond negligent for a lawyer not to look for a change of control clause or not pick up on it because it can obviously make a huge difference to any acquisition and the funding required.

 

But if Ashley didn't do any DD, as we are led to believe, and didn't get lawyers to look at the loan documents - then it is conceivable that he wouldn't have known about it.  However, nearly every loan document in the world has some form of change of control clause in it..

 

However (apologies for labouring this point), I find it very strange that Ashley would actually buy NUFC without doing any DD at all.  It's a very very risky and strange way to do business.

 

http://www.independent.co.uk/sport/football/premier-league/mort-brings-sea-change-to-tone-of-business-on-the-tyne-460911.html

"I'd rather keep it broad. I just think the financial position of the club is not as strong as we hoped it might be. But that in itself has not held back our investment on the playing squad and it's something that we'll deal with. We did the typical due diligence one would do on a public takeover. There is no sense that anyone has tried to mislead us."

 

 

In that case - I have no idea how Ashley could not have known about the change of control clause.  Doesn't make any sense whatsoever.

 

I think by "typical due diligence one would do on a public takeover" he means they read the published 2006 accounts.

[quayside]

Our debts have quadrupled in 4 years. I'd say it's very arguable we're better off financially..

 

Not so. Our debt has doubled since June 2007. We are better off financially simply because of who we owe the debt to not because of the amount of the debt. See Everton for a current example of what I'm getting at.

 

So, by your definition, what is the club's debt position atm?

 

The 2010 accounts show that the club owed Ashley £140 million. Right now I would guess (and it really is a guess) it's less than that. 

[cubaricho]

I miss Mort

[SUPERTOON]

So basically, we are in a mess in which Ashley will remain here for years?

[Hughesy]

It is a bit of a basic mistake to make - in any deal to buy a company which still has debt in place the first thing you check for is a "change of control" provision, lesson number one.

 

It is the sort of thing you can find out within about 10 minutes if you have the document in front of you, it isn't something that needs a team of expensive lawyers working on for weeks.

 

Spot on.  Probably not even 10 mins required.

 

So there's little or no chance Ashley overlooked it?

 

It would be impossible to overlook if you looked at the loan documentation in the first place.  One of the first things a finance lawyer would do in a due diligence exercise would be to look for exactly that kind of provision.  It would be beyond negligent for a lawyer not to look for a change of control clause or not pick up on it because it can obviously make a huge difference to any acquisition and the funding required.

 

But if Ashley didn't do any DD, as we are led to believe, and didn't get lawyers to look at the loan documents - then it is conceivable that he wouldn't have known about it.  However, nearly every loan document in the world has some form of change of control clause in it..

 

However (apologies for labouring this point), I find it very strange that Ashley would actually buy NUFC without doing any DD at all.  It's a very very risky and strange way to do business.

 

http://www.independent.co.uk/sport/football/premier-league/mort-brings-sea-change-to-tone-of-business-on-the-tyne-460911.html

"I'd rather keep it broad. I just think the financial position of the club is not as strong as we hoped it might be. But that in itself has not held back our investment on the playing squad and it's something that we'll deal with. We did the typical due diligence one would do on a public takeover. There is no sense that anyone has tried to mislead us."

 

 

In that case - I have no idea how Ashley could not have known about the change of control clause.  Doesn't make any sense whatsoever.

 

I think by "typical due diligence one would do on a public takeover" he means they read the published 2006 accounts.

 

Can't say I agree on that - in my experience, DD would definitely have been done on the loan agreements that the club had outstanding.  I think either Mort is bending the truth and no 'proper' DD was done (although I am sure that Freshfields would have recommended that it was done) or  'proper' DD was done and Ashley knew about the change of control.