CL Result: Reds 1 Chelsea 1

169 thoughts on “CL Result: Reds 1 Chelsea 1”

1. Thank you Julie. What you say makes sense, and that’s what I thought at first.

   Obviously there are various details to be sorted out such as how outstanding debts are secured etc, but if its possible to simplify it, here’s my logic for why I think the actual number might be a lot less.

   Club is owned by holding company which for the sake of argument is owned 50:50 by Hicks and Gillett. There may be other holding companies in the chain but I don’t think it really matters for my purposes.

   Say the club is worth Cx and has debt Cy. Its net worth is therefore Cx-Cy.

   Now say the holding company has no other assets except the club. Therefore the holding company is worth Cx-Cy. Now say that the holding company has debt Hy. Its net worth is therefore Cx-Cy-Hy.

   Now we get to Hicks and Gillett. They have a 50:50 share in the holding company, therefore each share is worth (Cx-Cy-Hy)/2. And so if Hicks was to take Gillett’s share off him, he would have to pay him that amount, ie (Cx-Cy-Hy)/2. (No doubt its way more complicated than that, but when we get down to the nuts and bolts, isn’t it true to say that that’s what Gillett’s share is worth?)

   So now plug in some figures. Let’s say that as a result of their offer DIC have valued the club as worth as much as 500M, ie Cx = 500M. Now I can’t remember exactly what the debt on the club is versus the holding company, and right now I can’t be bothered looking it up. But let’s say in round numbers its 100M or thereabouts. So in my little analysis Cy = 100M.

   Now total debt including what’s on the holding company I think is around 350M, which leaves Hy = 250M. So the Gillett share is worth (500M – 100M – 250M)/2, assuming DIC have offered 500M for the club. And that means that Hicks would have to pay Gillett (500M – 100M – 250M)/2 = 75M for his share.

   Now I probably really am showing I don’t know what I’m talking about!

2. To build on your mortgage analogy further Julie, if two people had a mortgage on a house for 350,000 and had it valued at 500,000, if one person then bought the other out wouldn’t it cost them 75,000 and not 250,000? If they sold the house they would clear the debt first leaving them with 150,000 which split each way would be 75,000 each. In both scenarios one person would leave the house with 75,000 in their pocket.

   In the case of the mortgage, unless you’re mortgaged to the hilt, the loan is secured on the property. Even if you’re mortgaged to the hilt, the loan is still very largely covered by the property. So even if Hicks does have to come up with more security, I personally doubt it would need to be anywhere near 250M worth.

3. Hop: using your model, and assuming that the club debt (Cy) would not have to be discharged despite a change in ownership, there would still remain the holding company debt (Hy) which (I think) for Hicks to carry on his own (as a result of buying out Gillett) he would have to double the value of the assets he is currently using as collateral.

   So while Gillett may walk away with £75m profit in his pocket, Hicks would also have to pay off half Gillett’s portion of the holiding company debt (in your model, half of £250m), which works out to a total cost to Hicks of £200m…or, pay £75m to Gillett and prove to the banks that he and/or the club can carry the total sum of Cy and Hy, £350m in debt.

4. “To build on your mortgage analogy further Julie, if two people had a mortgage on a house for 350,000 and had it valued at 500,000, if one person then bought the other out wouldn’t it cost them 75,000 and not 250,000? If they sold the house they would clear the debt first leaving them with 150,000 which split each way would be 75,000 each. In both scenarios one person would leave the house with 75,000 in their pocket.”

   I get what you’re saying here, Hop, but from what I understand it’s a combination of two different scenarios. If DIC offered 500,000 for a house with a 350,000 mortgage on it, and both current owners agreed to this deal, then the bank would get their 350,000 back and each owner would walk away with 75,000 in their pocket, exactly as you say.

   But (and this is only what I think, not what I know for fact) it’s a different situation when one co-owner buys out the other as the mortgage would need to be renegotiated to absolve the departing co-owner of any financial responsibility. To match the profit that would have been afforded to each partner in the scenario above, the remaining partner would be obliged to give the departing partner 75,000 but it would also cost him money to pay the departing partner’s share of the mortgage, assuming the bank wasn’t willing to let him carry the entire debt himself despite what the book value of the house/club represented.

   No doubt I could have given a more authoritative analysis of this had I stuck with my pursuit of a degree in accountancy and not abandoned it for Victorian literature instead.

5. This article was written by Jason Burt who like the Dawg knows people who know what’s really going on.

   http://www.independent.co.uk/sport/football/european/hicks-sings-from-his-own-hymn-sheet-as-dic-waits-in-wings-813903.html

   But who do we believe Mr Burt or the Dawg ??

   Where do you get it from that Dawg knows whats really going on? He has revealed nothing the same way the article quoted has revealed nothing. Its interesting to note that Dawg says Hicks couldn’t be expected to lift the other teams he has brought up higher so they could win more honours………..didn’t stop Abramovich or Jack Walker of blackburn, once again highlighting Dawgs very selective memory.

   The unescapable fact is Hicks has not got the money and cannot find the money to buy GG out. The world of finance is in crisis. No one will touch Hicks and thats a proven fact added to which is GG’s insistance that he will not sell even 1% of his stake. No one will stop DIC its all just a matter of time.

   Lastly “Dawg knows people who know whats going on”………….. yeah and Elvis is still alive, and shergars in the field next to my house being fed by Lord Lucan 🙂

6. A pedant writes….

   Good morning everyone.

   Sorry for leaving the debate mid-stream last night but I was seriously falling asleep whilst typing (not through tedium i might add). Therefore I felt compelled to re-read my comments just to make sure they were lucid. I am pleasantly surprised that I can be coherent when about to fall asleep (note to self: changing working hours at office!)

   Hop:

   Your formulae is correct to an extent until you reach the poin of `Hy’ as this implies additional debt on top the net worth of the club. If the holding company’s only asset is LFC, then by definition the level of debt cannot exceed to include any other outside indebtedness as there would be no non-lfc security to secure against it.

   Hop/Julie: your mortgage analogy:

   This is also ok to an extent but where you are swapping borrowers mid-term in a loan then the consent of the lender is a condition-precedent. Therefore the lender must be agreeable to the party leaving and the substituted party. I suppose if it translated to the present scenario then I personally do not think that the underwriters would have a problem with swapping Gillett for DIC.

   The other way would be of course a re-finance where the wholse existing debt is paid off through a new loan agreement with the new revised borrowers and lender. In this case the consent of the old lender is not required as they would be repaid in full.

   Anthony,

   Please do not take this the wrong way but I feel you are missing the point on the use of the Protocol. I do not wish to sound condescending but kindly re-read my comment at 12.08am. It only applies, in my view, to state interference and not between private individuals.

   If I have read your point correctly, then you are inferring that there is a law/statute which a statutory body is using which is contrary or interfere with peaceful enjoyment of private property. This is not the case here, as the state – i.e. Secretary of State responsible for trade, has not intervened in the problems at LFC. If it did and acted in a manner contrary to the Protocol then yes your points are valid, to an extent.

   One other point is that in such cases you have to identify who the victim is. Is it the Company? is it an individual shareholder or group or both? I would advise against rushing to say that Hicks/Gillett are the victims because, this again may be flawed thinking.

   I am not an expert on company/european law and therefore will happily stand corrected if I am wrong but this is my take on the situation.

   I must get out more.

7. Fred,
   Ever heard of irony ?

8. Raju – In order for the courts to intervene on Hick’s behalf then there must be a law already in existance that Hicks can use. The Protocol is part of the Europen Convention of Human rights, and will afford Gillette the individual protection from the UK Government and Courts. There has to be a law in place already which stipulates that Gillette cannot sell and then the courts could intervene. Unless their is a law which allows Hicks to challenge Gillettes decision in the courts the courts are powerless to stop Gillette because Hicks would basically have no legal right or claims to Gillettes shares or to tell Gillette what to do with his shares. Gillette is afforded that protection by law. I am not saying that Hicks does not have a grace period where he will be able to challenge Gillettes decision, but eventually their will come a point where it would be unlawfull for the state to intervene on Hick’s behalf on the grounds that Hicks has no legal claim to Gillettes shares and as such he would not be able to bring such a case against Gillette, so therefore the courts would not be able to intervene as it would be unlawfull and a breach of Gillettes human rights in accordance with the European Convention Of Human Rights.

9. Nice one Anthony…….just what I’ve been saying all along !
   But just wait till the Dawg wakes up this morning – Courts; human rights; the law; phooey !

10. Anthony,

    Again, I really do not wish to sound patronising or elitist but I get the feeling we are talking on different wavelengths here.

    We will have to agree to disagree with your use/interpretation of the protocol/ECHR/courts.

    Perhaps you are inadvertently referring to the principle of proprietory estoppel rather than protocol as your arguments fit the former rather than the latter.

    One other thing…courts are a historically a forum to resolve legal disputes. It does not actively intervene/interfere. the courts do have inherent jurisdiction in certain matters but this is seldom used in these sorts of cases cf. children act cases.

11. http://www.liverpoolecho.co.uk/liverpool-fc/liverpool-fc-news/2008/04/24/kop-in-moving-tribute-to-liam-harker-100252-20813554/

    Puts it all in perspective.

12. Raju what I am poitning out is that if Hicks does not have written into the agreement that he has an unlimited amount of time to buy out Gillette thenhe will have no grounds to stop Gillette from selling his shares. The courts may get involved but fundamnetally the courts will rule in favour of Gillette becasause the courts will have no power of Gillette to tell Gillette what he can do with his shares. The only way the courts could stop Gillette is if Hicks and Gillette both entered into an agreement whereby niether could sell without the others permission and it was written into a contract that no time frame was included. Othewise like DIC have said Hicks claims to have power of veto over Gillette selling his shares are based on very weak legally binding terms. If Hicks does not have the money to buy out Gillette then the age old saying will come into force ownership is nine tenths of the law. Hicks would have no legal right to stop Gillette from selling his shares to DIC unless a contract existed between both Hicks and Gillette which stated that one partner had an absolute final say over what the other does in such circumstances.

13. So it all comes down to: does Hicks have the means to buy Gillett out? And the lower the number Hicks has to come up with the more likely it is he will be successful.

14. Anthony,

    if that is the point you wanted to make, then yes, it would not possible to deny a party’s right to deal with their property. In this instance, any interference to do so would be contrary to the underlying legal principles I spoke of yesterday.

    Perhaps it may have been lost in translation but I don’t think anyone doubts that shares are contrued as property.

    However, my reservations were (and continue) on how you were using various legal terms/rules as they do not always support the message you are trying to convey.

15. Hop – Basically if Hicks can get the money to buy out Gillette within a certain not an unlimited amout of time then Gillette will very probably not be able to sell to Hicks. If Hicks caan’t get the money then Gillette will be able to do what he wants with his shares unless there is a prior agreement between the two.

16. Raju – What I’m trying to say that Protocol 1 Article 1: states that the courts will not be able to dictate to Gillette what he can do with his shares as Hicks will have no legal claims to challenge Hicks. The courts can only tell Gillette what to do with his shares if either there is a law in place that Gillette must abide by, and I do not believe that any law exists which Hicks could use against Gillette. Or Hicks and Gillette have a prior agreement between themselves theat Gillette would be in breach of should he decide to sell. From what I can gather the selling of shares is not for the law to interpret it is for the partys involved in the deal to arrange between themselves. Both partys would have entered into an agreement when they both purchased LFC.

17. “Its interesting to note that Dawg says Hicks couldn’t be expected to lift the other teams he has brought up higher so they could win more honours………..didn’t stop Abramovich or Jack Walker of blackburn, once again highlighting Dawgs very selective memory.”

    You are comparing apples and oranges here, Fred. There are many, many different factors involved when comparing the Texas Rangers, Dallas Stars, Chelsea, Blackburn, etc. (And the Stars have been a much, much better club under Hicks than they were for their 3 decades prior to Hicks.)

18. And many similarities all sports clubs and under Hicks won virtually sweet fa.

19. Anthony,

    Just to conclude our earlier discussion. we appear to be going round in circles.

    I am not able to add anything more to what I have already said.

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