As Liverpool fans look forward with dread to the summer transfer window, a report in the Telegraph this morning claims that Liverpool co-owner Tom Hicks has been looking at using “hedge funds” as part of his plans to finance his attempt to take control at Anfield.
The report appears in the money section rather than the sports section, and points out the hedge funds approached are some of those that helped Malcolm Glazer in his takeover of Manchester United. The reports says Glazer got £275m of the £790m purchase price from hedge funds in the US, namely Perry Capital, Och-Ziff Capital Management and Citadel.
Hicks has been using Merril Lynch in his search for finance, and the Telegraph says: “Advisers are understood to have approached some of these funds recently to raise financing that would help him acquire George Gillett’s 50% stake in Liverpool and build a new 70,000-seat stadium at Stanley Park.”
Based on the lowest value usually quoted in terms of DIC’s offer for the club, Hicks needs at least £200m to buy Gillet out, which includes Gillett’s half of the total £350m finance, £105m of which is on the club.
According to the article, this type of financing is “playing an increasingly important in role in private equity financing, especially as the credit crunch has made it harder to raise debt from blue-chip banks.” It mentions retailer Peacocks being taken into private hands by its chief executive for just over £400m, and says that Newcastle were looking like being bought by hedge fund Polygon until wealthy supporter Mike Ashley stepped in.
The report says that even this “mysterious world of capital” isn’t a straightforward one, and that “at least one leading fund involved in these types of deals is understood to have rejected the opportunity to finance Mr Hicks’ plans for Liverpool.” It quotes a source: “There was an approach. It was turned down because the investment case for Liverpool is not the same as Manchester United.”
The Telegraph adds itself that “other hedge funds are understood to still be in discussions to provide financing for the deal.”
The article also points to the confusion over the alleged pre-emption deadline, saying: “Mr Hicks… has a pre-emption right that allows either man to acquire the other’s stake before it is sold to an external investor. It is said the right runs out towards the end of May, although banking sources say it is not clear whether this is in fact the case.”
If Och-Ziff are one of the funds approached then it’s little wonder they turned Hicks down. They are almost 10% owned by DIC, after selling a minority stake to them in October.
Citadel describe themselves on their website as “a leading global financial institution focused on alternative investment strategies. Founded in 1990, Citadel today deploys more than $20 billion in investment capital across multiple asset classes and investment strategies.” A 2005 Forbes article said Perry Capital were worth $11 billion.
In his much-criticised interview with Sky Sports last month Tom Hicks said he was planning to use various investors to help him buy George Gillett out. “It’s complicated, but it’s going to happen. I can’t force George to accept but I will make him an attractive offer soon. It’s not just the money to buy George out – I want to fix the entire financial structure of the entire club. If I’m the majority owner I could put more capital in, and I’ve got a 25-year track record of being a very successful investor around the world where I know there are people, institutions and individual investors who would like to be a minority investor with me and Liverpool.”
He also made some more bold claims: “I’ll take all the debt off the club. I want to get all the permanent financing in place for the stadium, and I want to have our finances very sound. I want to be the majority owner of a group that buys the club and fixes the balance sheet of the club at the same time, and finances the stadium at the same time.”
Buying Gillett out, covering the existing debt and funding the stadium would cost something like £700m. Perhaps Hicks’ most successful days are behind him, but one of his most well-known deals saw him buy Dr Pepper and Seven-Up for $45m before selling it two years later for $700m (around £350m). But a rumour first heard in early March claims JP Morgan, one of Hicks’ US bankers, are all but set to force him to sell his Liverpool FC share to pay for his commitments in the States.
As for what hedge funds are, descriptions vary usually depending on how scary you need them to sound. Malcolm Glazer seems to have funded around a third of his purchase of Manchester United using them, and his name strikes fear into just about any football fan. In most cases very little needs to be revealed about the details of hedge funds, leaving those sitting outside a deal wondering just what is going on. But the bottom line of using such a method for financing is that the two sides to the deal negotiate their own terms, and nobody is forcing one side to accept a deal they don’t feel comfortable with. If the purchase of LFC is made using terms similar to the worst examples then nervous times await, but it doesn’t necessarily need to be a worry at all. Whether we’ll find out the terms of such a deal, assuming one goes ahead, remains to be seen.
But what must be seen, sooner rather than later, is progress.
The word coming out of Anfield points to Rafa Benítez being given a transfer budget that may work out as the lowest in the top flight, and coming as the club have moved so close on the field to those above them it will be a huge disappointment if this summer’s transfer dealings result in the club losing ground again, but until the club get an outright majority owner there seems to be no other outcome. Hicks seems determined to find the finance, however long it takes. DIC show no signs of upping their offer, relying instead it would seem on their confidence that Hicks won’t be able to find that finance.