Report: Hicks may dilute Rangers / Stars holding to hang onto Reds

An article syndicated throughout the US press overnight claims that Tom Hicks is looking to refinance the whole of his sports empire as part of a bid to take over full control at Anfield. The implication is that he’s so determined to hang onto Liverpool Football Club that he might just allow other investors to get a stake in everything he does in sport.

His 50% shareholding in the Reds is just one part of his sports empire, as well as the Reds he owns the Texas Rangers (baseball), Dallas Stars (ice hockey) and Mesquite Championship Rodeo (rodeo, unsurprisingly) amongst other interests including stadia. All of these come under the umbrella of the Hicks Sports Group, previously called Southwest Sports Group. The name change helps avoid stories like this default on a $135m loan by this Hicks sports group  appear when searching on Hicks’ activities in sport.

The syndicated article is by Rob Harris of the Associated Press and is headlined, “Tom Hicks seeks control of Liverpool.” It claims that Hicks’ preferred choice to buy Gillett out of LFC would be to raise private equity. The claim comes from “a person familiar with Hicks’ plans” – probably someone from inside the Hicks camp itself – and says that the private equity bid could possibly include his entire sports group. This familiar person spoke on condition of anonymity.

Hicks’ outburst earlier in the week the to the Fort Worth Star-Telegram made it clear that George Gillett was looking to sell out to Dubai International Capital, and included a claim that Gillett had to get Hicks’ permission for the sale to go through. A false claim, given that the only block Hicks can put on the sale is to match the offer himself and take up his first-refusal option.

It’s no real secret Gillett wants out, and no real secret DIC are the only bidders if Hicks can’t match their offer. Harris says he’s had it confirmed that Gillett was in “ongoing discussions to sell to DIC”; this coming from a “financial industry executive familiar with negotiations”, again the information handed over on “condition of anonymity because of the sensitivity of talks”.

Because the club was landed with £105m of the full £350m debt – taken out with a week to go until they defaulted on their original purchase loan – the actual figure required to effect a takeover may turn out to be as little as $300m, around £150m, according to the report. That’s half of the £245m dumped “at holding company level”, plus some profit for Gillett.

The task for Hicks to raise half of £245m (plus profit for Gillett) is obviously less difficult than raising half of £350m (plus profit for Gillett), but less difficult doesn’t mean easy. The figure quoted in the article would bring Gillett a profit of £27.5m for a year of work that entailed a few flights, a bit of scarf wearing and making a long list of empty statements.

Given the difficulties the owners had in securing the original finance package, there’s nothing that says this attempt by Hicks will be met with anything other than the same, if not further, difficulties. Private equity investors will be no more willing to risk their money without checking out the risks than a bank is. Whatever it was that prevented the banks from putting any more than £105m debt onto the club is still there, whether it was reluctance on the part of the banks themselves or  pressure from other board members. It was four months after first mentioning they’d tried to refinance their debts before they finally got approval, and that approval came reluctantly. Both owners’ assets have significantly dropped in value since takeover, largely because of the credit crunch, meaning they had to use a larger proportion of their assets than preferred in order to secure the finance.

Why didn’t Hicks buy Gillett out in January, by which time the Canadien’s owner had already lost interest? He couldn’t – the banks wouldn’t lend the full amount to him alone. And he clearly had no other investors willing to join him.

What Hicks is trying to do now is persuade other investors to put their money where the banks wouldn’t. With the known facts about the Liverpool situation as they are, investors will be reluctant which is why he’s now considering allowing them to get a stake in all of his sports businesses as part of the deal. He wants to use the Texas Rangers, the Dallas Stars and the rest to prop his Liverpool FC investment up. He’s hoping that eventually there’ll be something to gain from the mess he and Gillett made at Anfield.

Somehow he’s got to the use his charms to persuade other investors that the banks were wrong not to back him.

If the potential investors look into the background of the deal, they’ll see why the banks were reluctant to lend the money. The banks’ agreement ultimately came down to the guarantees in place that give the banks a way of getting their money back if it goes wrong. If the club can’t pay the interest on the loans, and all the club’s best assets have been sold then the banks can seize the personal guarantee assets from the owners and sell them to get their money back. As long as the banks are satisfied the assets more than cover the amount borrowed, they know they’ll get their money back. Private investors won’t get that safety net – if the plan fails then they lose their money.

And Liverpool’s long-term future is very much on a knife’s edge and the plan could easily fail. Failure to finish in the top four would be a disaster for the club, and Liverpool are the only one of the teams in the fourth place scramble where failure would bring major problems. It certainly adds to the pressures on the players and manager knowing that fifth place could result in a need to sell players in the summer, signalling the start of a downward spiral like the one Leeds United were ruined by not all that long ago.

Last year Liverpool’s transfer spending was a net £20m, thanks in part to an unusually good summer for player sales. If the owners are to be believed, that £20m was funded in part by borrowed money. They imply the club couldn’t even afford that £20m. Liverpool made something like £24m for their Champions League run, all the way to the final, yet had to borrow before they could spend £20m on transfers.

To potential US investors not familiar with the transfer systems in European soccer, £20m, around $40m US, may sound like a massive amount of money. It is a massive amount of money – but not in terms of spending amongst the top teams. Last season’s champions Manchester United spent more than Liverpool on their transfers last year. They spent a net figure of around £25m ($50m US approx) in 2007. Potential US investors may feel that Liverpool’s spending was pretty close and hardly worth getting worked up about, but Manchester United spent around ten million dollars more than Liverpool on improving a squad that was already way ahead of Liverpool’s in terms of strength.

Gillett and Hicks were brought in to close the gap on United, but in effect, Manchester United increased the gap by £5m, and that gap is clearly getting wider. In a similar way, the gap between the Reds and the teams outside last season’s top four is getting narrower. Liverpool absolutely must spend on a par with their rivals just to remain in the same position, and given that this season’s position is fighting for fourth place then that’s clearly not enough.

Potential US investors may also have failed to grasp the importance of fourth place. It brings a place in the Champions League qualifiers and a good chance of entry into the Champions League proper. Even that’s no guarantee, as Everton found out in 2005-06, but – winning the competition apart – you don’t get a chance at all if you finish outside the top four.

Liverpool’s £24m from last year’s run, and their £28m income from player sales add up to around £52m. Rafa spent £48.5m on players, but the owners say they had to borrow to allow this to happen. They had to borrow £25m they say.

Keep in mind that Liverpool had no £30m interest payments to find last year, and the owners say they had to borrow £25m to help pay for Torres and Babel. Without £24m of Champions League money, they’d have needed to borrow £49m to help buy the pair. Without the unusually high £28m income from sales, they’d have had to borrow £77m to buy the pair. Babel cost £11.5m, Torres £20m, a total of £31m. So take away Liverpool’s CL income, take away the money coming in from player sales and take off the cost of Torres and Babel and it sounds very much like the owners would have needed to borrow £46m just to break even on everything else. That’s without £30m of interest payments that are due from this year onwards. The £46m figure would include around £17m spent on other players, purchases of the likes of Lucas and Arbeloa amongst others leaving a shortfall of around £29m had there been no Champions League money coming in, and no movement of players.

Even with the £24m Champions League money coming in, the club seems to have made a loss last year, based on the owners claim to have borrowed £25m for transfers. We spent a net figure of around £20m on transfers. They borrowed more for transfers than they spent. So even if all transfers in and out had been frozen, and despite going all the way to the CL final, Liverpool were around £5m short of having what they needed just to tick over. Unless of course the claim of borrowing £25m for transfers was a lie.

Quite how Liverpool are going to survive now with a massive debt burden and no new income streams is something of a worry for fans. The £5m loss is neither here nor there in that some of it will have been as a result of the club’s expenses for the takeover itself, and Liverpool have never been set up to make a profit, but now we have the added £30m a year to find in interest payments, the worries are massive. Never mind buying new players and keeping pace with other clubs’ spending, if we miss out on £20m in Champions League money we’ll be forced to sell players.

DIC want to see Liverpool’s books before they make a move, and so would any right-minded potential investor from the US. If they’re also looking at buying into the other Hicks Sports interests, they’ll need to see those books too. Both owners are as entitled as each other to allow their interested parties to look at the books. And it’s important they check them carefully.

Hicks is refusing to offer shares in his Hicks Sport Group on a public basis. The article reports: “A person familiar with Hicks’ plans ruled out a public offering of shares in Hicks Sports Group, which includes baseball’s Texas Rangers and the NHL’s Dallas Stars as well as the 50 percent stake in Liverpool through Kop Holdings. The person cited volatility in the global financial markets. The window of opportunity for that option may reopen before the end of the year, but isn’t currently viable, the person added.” No doubt Hicks doesn’t want it broadcasting that his sports group, recently forced into laying-off staff, is not as buoyant as he would like.

This person referred to told the reporter that “Hicks has been looking into the feasibility of a private placement to raise money” and that although DIC and Gillett are in “constant negotiations”, DIC are only interesting taking a controlling share of LFC. This in turn, he says, would require Hicks to sell some shares which he’s not willing to do.

The article quotes “another person close to Hicks”, again speaking on condition of anonymity: “He’s not in the market to sell, but he’s in the market to buy more shares.”

In reality Hicks wants control and DIC want control. Neither want the next phase in Liverpool’s ownership to be on a fifty-fifty basis, but the suggestion DIC would not buy at fifty-fifty is believed to be slightly wide of the mark. They don’t want to be minority shareholders, but once on board as joint owners, DIC would have new ways of putting pressure onto Hicks to sell part of his interest. Hicks is known to have been in discussions with DIC, which pours a certain amount of cold water on the denials he has about wanting to sell.

Unless Hicks’ secret plans include bringing in a third party who would allow the debt owed to the banks to be reduced, investing their own money rather than money borrowed at high interest rates, Hicks isn’t likely to be a popular figure at Anfield again.  To refuse the involvement of DIC, who could allow Liverpool to become stronger on the field rather than weaker – as is likely under the current conditions – would show that personal pride and image is more important to Hicks than the club he once pretended to care about.

23 thoughts on “Report: Hicks may dilute Rangers / Stars holding to hang onto Reds”

  1. This is yet another illuminating analysis of the maze-like situation that our club is in right now. I just hope that the financial and business difficulties that Hicks would seem to be facing in his US ‘franchises’ are no wishfulfilment. I fear that he might finally be able to control all the club, which would substantially protract any takeover by DIC. LFC needs a massive influx of funds next summer (for two full backs, another creative midfielder and one or two good-quality strikers to help Fernando), and Hicks cannot provide that.

  2. Apparently these guys have also spent over £10 million in architects bills for the various designs for our imaginary new stadium which is one good player purchase down the plughole.

    We managed to spend £20 million a year for the last few years without making borrowings so things don’t look so good under the new regime if we had zip to spend last year without needing a load.

    If we don’t make fourth this year it may set us on a downward spiral. Villa, Man City and Tottenham are already close to us and may all be able to outspend us in the Summer.

  3. the more I read about hicks the more angry I get with moores and parry,
    but getting back to hicks what is it with this man,does this man not realise he is not wanted ,
    I don’t trust him,he seems to be on a mission of revenge against LFC fans, it’s as if all the name calling has got to him so he’s setting out to destroy the club,
    at the same time make himself a fat profit, just think with the original plans the ground was due to start 12 months ago,
    all as this man has done is stall stall stall and cost us money in the proces,
    hicks just go to hell we don’t want you be a man admit your mistake and walk away

  4. Oh dear,
    I fear for the safety of LFC under the ownership of Tom Hicks. The more I read about the take over by DIC the more i believe that Hicks is hell bent on takeing full control and saddeling the club with more debt that will send us on the downward spirel. Please get the message Tom, youre not wanted so just sell up and leave.

  5. A great Read!! and i am more worried than ever when you mention Leeds Utd syndrome, that could also happen under this man Hicks. He want total ownership, and is ready to re-finance his other clubs, just to get hold of Liverpool fc. He is hiding alot, and the banks don´t trust him now, that says we should be worried. Hicks will not leave LFC unless he is pushed. I´ll push him, will anyone else help me.!!

  6. Great article Jim. It’s been stated before but our anticipated end league position could play a vital role in the outcome of this mess. Hicks will fight tooth and nail to find a way, any way, to retain control, and at whatever cost. If it looks like we aren’t going to qualify for Europe then that will have a significant effect on the attractiveness of our club for these rogue investors that purportedly could be involved in helping Hicks takeover. Not that us finishing 5th would be good of course – especially if Hicks retains control regardless and thats even before you factor in the fact that we are a football club with ambitions and want to be competing in Europe’s premier competition, or is that a side factor now?!

    God help us from this devil.

  7. Surprisingly, I’ve calmed down since reading the AP article earlier this morning.

    I just can’t see how Hicks can realistically make the maths add-up.

    I appreciate that it was Gillett who largely was unable to make the re-financing deal work. But Hicks didn”t seem willing, or rather able, to bail his then ‘partner’ out.

    Not only do I think, or rather hope, Hicks has financial difficulties (to make is 100% sole ownership difficult) but I cannot see how any business man would tolerate a 50:50 relationship with him in charge when Hicks wants to bully and be the top man. His past and current behaviour will put too many people off – particularly as the finances are so precarious.

    This must put Hicks in a very very difficult situation unless his Republican friends put Liverpool FC above funding a right-wing candidate during the presidential elections!

    So where does this leave Hicks? Divesting his interests in his American ‘portfolio’? Can’t see it. How is he going to take playing second-fiddle/partner to anyone in his home texas state?

    And, how is he going to put all his eggs in one (and a half, if he keeps partial USA interests) basket when Liverpool FC supporters and followers, at home and abroad, are so against him? It’s one thing getting on the wrong side of Mancunians, a la the Glazers, but Scousers is an altogether different challenge in the medium to long term. Docile supporters we are not.

    So what now…..

    Well, the pressure on Hicks is immense. The clock must be ticking fast on him to secure the funds before DIC can take Gillett’s share. I just hope that in tomorrows News of the World – Bascombe has an exclusive saying ‘Hicks’ DIC’d’

    Keep up the good analytical work Jim!

  8. Hicks realises that once the new stadium is built, plus media income and improved sponsorship deals arrive, LFC will be a hugely profitable enterprise. He is hanging in to get his snout into that trough. Private equity firms could be persuaded to share in this pot of gold if Hicks can convince them of the long term gains. For him to consider diluting his American portfolio, shows how serious he is in securing a long term future for himself at Anfield. From what I’ve read elsewhere, he would countenance a DIC partnership if they focused on the team, and he on the new ground. It’s all very confusing and should be a source of shame to Parry and Moores.

  9. I have a very bad feeling about this! Hicks is pushing the boat out to stay in control at Anfield, why ? I’m sure the he has something up his sleeve!

  10. They’re not lying when they say it’s a bad time for an IPO, with the markets the way they currently are.

    I doubt that’s the main reason for not wanting to go public though. It’s probably got more to do with fears about how badly it might be received, given how financially fucked all the businesses under this HSG umbrella appear to be.

    It could be a huge embarrassment for Mr Hick. And no investment bank would want to be associated with such a
    disaster as it reflects badly on them.

    As for getting private finance: I’d hope any right-minded investor would take a look at the man’s history and the state of these businesses and say “no thanks”.

    But there are unscrupulous types out there so who knows – maybe he has a few favours to call in or something.

    Or maybe there’s someone out there with £150m who has just had a lobotomy.

  11. In Chinese, Hick’s rant is like a “dead chicken scratching in the rice pot”. Unlike DIC, they are cool at the whole situation. You don’t read about the Sheikh ranting about the whole thing.

    Hicks is on at the corner and his public rants shows he is under pressure and stressed out.

    I think the end is near for Hicks.

  12. Please let me elucidate a little here.

    Hicks is not raising the money to buy out Gillett. He does not have the assets to afford that.

    Hicks is raising the money so he can stand toe-to-toe with eventual partners DIC who will refuse to allow him to raid club funds to pay his debt interest.

    He needs to hang on until the stadium is built or until he receives an equivalent present value settlement.

  13. Hick’s biggest problem is every time he opens his mouth he says something,get the ^%$#%^ out.

  14. i am so depressed by this situation its ridiculous.
    Every day their is depressing news stories without fail. either benitez,players shouting out they are sick of it,the press having a good old laugh and mirroring Leeds, owners talking bollocks, but i find it very frustrating we have not heard a jot from Mr Moores, the very man who in my opinion sold us into oblivion.Surely he should be coming out and saying at least something, as he is right in the mix of this.I pray the fact DIC have said nothing means there is a deal eventually on the horizon. Gillett wont sell to Hicks no matter what shit Hicks comes out about,at the end of the dayGillett can sell to who he like for whatever he likes, its his shares. Hicks is worried about that and is why he wants to “attempt” to buy out Gillett,He knows as has been said earlier, that DIC will have so much power when they get in to the boardroom through their own funding, that Hicks knows his time is running out. Unfortunately, this is all taking so long we are heading for oblivion, and Parry and Moores no longer sem to give a shit it seems. Thanks alot David,would have rather you stayed in charge, dont bother about a stadium we dont and never really needed anyways,and just concentrated on the team. Why Moores decided the Arabs and their deep pockets were a better option thatn Gillett who went begging to another millionaire was far better,only he knows,but it doesnt look like he has the graciousness to come out and admit his mistake. Here comes the Championship it seems, as that is where Hicks wants us i suppose

  15. Another excellent article Jim. I can’t help thinking a lot of Liverpool fans are overly focussing on the Hicks-Benitez thing rather than on the underlying financial problems which are the real story here. Hicks wants us to focus on Benitez so that we don’t focus on the longer term financial issues going on behind the scenes. Hence the sudden outbreak of love between Hicks and Benitez.

    Clearly Hicks believes that if he can reverse his position on Benitez and blame it all on Gillett Liverpool fans will be gullible enough to believe him and not notice how badly Hicks is f**king the financial viability of the Club. Hicks seems to be one of those serial liars who doesn’t realize how embarrassingly obvious his deceiptful strategies are to everyone watching this nightmare.

    It seems clear from all of the information I’ve seen that Hicks’s sports empire is struggling bigtime financially. However my big fear (given Hicks’s dishonesty) is that he might be able to bullshit some gullible American investor into giving him the money he needs. The convoluted nature of his methods only reinforces this suspicion. Hicks acquiring all of Liverpool would be an absolute disaster for the Club.

    The fact that Hicks’s strategy depends on winning over both the fans and new investors makes it all the more imperative that we Reds’ fans continue to make our loathing of Hicks absolutely and unmistakeably clear to Hicks, his son, potential investors and the rest of the world at large. The biggest mistake we could make now at this decisive moment is to stand around in silence feeling sorry for ourselves. Our silence will only encourage Hicks and make him think his strategies are working.

  16. oh! god where r we goin?? hicks should just sell up n leave if he really want something good to happen for his so called BELOVED club..players like gerrard are getting hugely frustrated by our incapability to mount a serious challenge for the league.and it won’t be a big deal if he leaves for some other big club,who would help him realize his dream of winning the league.this summer is going to be one of the most historic summer in liverpool football club’s all over the world wants H&G to sell the club to DIC for the betterment of our plz Mr.HICKS&Mr.GILLET spare our club from your personal gains n sell our beloved club to DIC because they can help this squad grow with their huge funds n can make our dreams come true..YNWA..

  17. Hicks will make this Reds team the greatest on earth! Just wait and see. Everybody thinks DIC are going to save LFC but what is that based on? Millions of dollars from money laundering? A Just let Mr. Hicks do his thing and ye shall be rewarded.

  18. All quiet. Found a couple of little snippets in Dallas and Dubai websites

    The Rangers suck.
    They’ve had absolutely zero interest in winning for damn near 4 decades, and we suddenly think their going to start now? Take the Rangers for what they are; a good trip out to the ballpark with your kid to watch really bad baseball.

    Seriously, Tom Hicks, Just Sell the Texas Rangers and Stop Pretending Like You Give a Damn

  19. Good article Jim but isnt it a bit simpler than that:

    – Hicks wants to buy out Gillett
    – Hicks says he isnt going to sell
    – DIC want control

    If Hicks isnt selling and wants control, why wouldnt we want that. Surely the main issue of the Hicks Gillett partnership was that 50/50 does not work.

    I just dont get why everyone thinks DIC will be any better, they wont be better as a partner with Hicks and they definately wont be better as the sole owner. This is a true investment company they buy to sell. Anyone who thinks otherwise is kidding themselves. At least hicks is from the sports industry, he has had his US clubs for over 15 years. Its his family business not an investment company.

    These two made an almighty cock up in several areas, they lied about the funding and it looks like Gillett and his lame son panicked and went to klinsmann but other than that I honestly believe hicks wants to make this work. Otherwise why would he refuse to sell, lets face it with the markets in the shape they are in he could walk away with DIC money and be done with all the hassle. He wants to get this because he can turn it around you would think.

    Arsenal have massive stadium and club debt but the new stadium and a steady state of affairs generate an additional £ 60m a year for them, we need to be a stronger club off the field, better deals than Parry and co delivered and better deals for us as fans in the way we are treated.

    If Gillette is the one who started the sack Rafa thing which it looks like, and he doesnt have any money which it looks like, then I think we should give Hicks a go, and support him, chase the arabs out of town with Gillett and Parry with them.

    One way or another we have to get out of the papers and get on with our football

  20. Thanks Mike – and I hope your last sentence comes true sooner rather than later. We’ve got a game tomorrow night and I’ve not even looked at who’s fit and who’s not.

    I still think it would be hard to get a worse scenario than now. Gillett and Hicks don’t speak. 50-50 doesn’t work even if you are speaking unless you set your board up to have a number of members who aren’t shareholders. It’s hard to say which future would work best.

    I’ve got concerns both ways. Hicks-Gillett being awful doesn’t make DIC good. That said, there’s nothing to say DIC are bad.

    We’re not 100% convinced yet that Gillett was the worst of the two in situations like Klinsmann, but it seems that Rafa beleives he was, and that’s the word starting to come out.

    From what I have been told, DIC are treating this investment differently to their others – otherwise they’d not be here now. But whether that’s enough to take us forward far enough we really can’t tell.

    As for running football clubs, DIC would be likely to bring in the best people for the job in each position. If they choose a CEO who is a financial wizard, then they’ll have a director reporting to him/her who is clued up in football.

    I wouldn’t assume anything about any of the possibilities. Hicks may not be as bad as we fear, DIC not as good as many hope, and if that’s the case, there’s a lot less to choose between them.

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