Report: Hicks considers hedge funds to part-fund takeover

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.

Further reading:

BBC News – Business – So what are hedge funds?

Times – Hedge funds on the brink as US Federal Reserve cash fails to ease crisis

Times – Hedge fund returns ‘are vastly overstated’

Independent – 1 debt is $3bn but returns are so good, hedge funds want in

Guardian – What’s really going on with hedge funds?

179 thoughts on “Report: Hicks considers hedge funds to part-fund takeover”

  1. Even press is ‘pressing’ the almighty hicks now…

    timesonline.co.uk/tol/sport/football/premier_league/liverpool/article3883083.ece

  2. @Cory & JB

    thanks for the link to the podcasts Cory. Interesting stuff indeed although a lot of it isn’t exactly new.

    The one thing that I really did take notice of that you alluded to earlier is CB’s assertion that Hicks is going to find himself under massive pressure if DIC aren’t in after May from everyone around the club (nothing new there) and certain players. He was pretty emphatic about this so will be interesting to see what happens. Jim, if you want to hear this part go to around 16 mins onwards for around 2 mins…

    And you’re right, Bascombe thinks it was a massive mistake getting Hicks involved.

    Interesting that Bascombe also said something along the line of ‘i think we can agree that most liverpool supporters see Gillett as the lesser of the two villians’. He said this like he believes it himself, which I know you totally agree with Jim! 😉

  3. The one thing that I really did take notice of that you alluded to earlier is CB’s assertion that Hicks is going to find himself under massive pressure if DIC aren’t in after May

    And this is probably what Gillett is waiting and hoping for. Pretty insane and sad that a guy would go to such lengths all just to spite someone.

    It’s not going to work though, Martin.

  7. Maybe Hicks hasn’t put money in over and above what GG can afford because he doesn’t have the money to do it.

  8. @ Pierre: Not so much DIC spin, because I doubt Oli Kay would take purely their word on this.

    But the other side to the coin is that there is this wait to ensure a judicial review isn’t called for. The equivalent of yesterday’s decision for the previous version of the stadium was made in November, but the government decision didn’t come until two months later. So whether they’ve got three-hundred million pound coins sitting there in a big cupboard at the back of the Main Stand or if they’ve still not got the remaining finance sorted out it makes no difference at the moment, they can’t start work anyway.

    Then, and I know it sounds like something out of a big book of excuses, but they have another legal obstacle in their way. I checked this out, to see if it really was a legal obstacle, and it seems to be: You can’t fell trees during the nesting season. Google told me that there’s an Act (The Wildlife and Countryside Act 1981) setting this out, but the Act doesn’t actually specify the dates of the nesting season. The nesting season, I read, goes into June, but it varies. “The Act makes it an offence (with exception to species listed in Schedule 2) to intentionally kill, injure, or take any wild bird or their eggs or nests.” (According to http://www.jncc.gov.uk/page-1377 which discusses the Act).

    In other words, you can’t clear the area until the birds have flown their nests. And the opportunity for puns must be overwhelming by now. 😉

    To my way of thinking, we’ve perhaps 6 weeks max of birds nests, and maybe 8 weeks of waiting for the government, although as it was an exercise carried out very recently I expect they could reduce the 8 weeks given they’ve really only got to look at what’s changed in the space of 4-6 months.

    The government decision should be a formality, but I suppose it could be argued that there is no point finalising the stadium finance until it’s known that it really was a formality, and that no extra conditions would be applied. But the birds decision is a formality. They will fly!

    After that, if the £60m is in the bank waiting for go-ahead, I see no reason why work can’t begin.

    So that’s basically an alternative look at the “Sources indicated last night that there are no plans to begin construction in the foreseeable future” bit of the Times report. If we’d been told something like that a year ago just about every Red would have accepted it without the blink of an eye. If DIC had taken over in March and said the same most fans would have accepted it – because no fans assume DIC would struggle to raise the money.

    I know I say not to compare the two (DIC and Hicks), but what I’m saying is that this remains a valid excuse, but only for a short time.

    Looking at this part of OK’s article: “Sources have described the impasse as “the major issue for the club”, saying that Hicks will come under severe pressure either to prove that he can generate the funds needed to take Liverpool forward or to sell his stake in the club to DIC and allow Gillett to do likewise. I’m not sure what the “severe pressure” is. It could be literally a prediction about how even the most patient supporters will run out of that patience and the protests will escalate. It could be that DIC will, with GG, start a major campaign in the press. It could be that DIC and/or GG will force Hicks’ hand in the courts (or threaten to). But that last one requires GG to accept an offer, and I’m still under the impression he hasn’t. Yet. But whatever the “severe pressure” is, it’s a fact that fans will grow more and more angry if there isn’t some action, not words, soon.

    We’ve got a close-season now with no games (after Spurs) to distract us from the other issues. Once or twice a week at least since we went out of the FA Cup we’ve pretty much had 90 minutes of escapism in the form of Torres, Gerrard and the rest entertaining us. Now we’ve got no distractions, anger will build. Maybe this is why a new PR agency has been hired by the Hicks camp.

  10. @Fred: “Maybe Hicks hasn’t put money in over and above what GG can afford because he doesn’t have the money to do it.”

    I understand your point, you aren’t the first to raise it, but I can’t help thinking that he could find the money if it was an easy way of muscling GG out. He’s had six months to find one of his many other interests to sell, even if it’s not the best deal for him, in order to do this. The only thing that might stop him is that DIC might help GG call his bluff, technically speaking.

  11. @Jofrad: If your post has a link in it then there’s a good chance it’ll go into the spam folder. I’ve no control over that without opening it up completely to all kinds of spam. So they sit there until I physically free them!

    Even some of my own comments have gone into the same place if I’ve had links in them, but less often.

    If you’ve got more than I think 3 links in a comment, even if it doesn’t class it as spam, it automatically holds them in another folder, a moderation folder, for manual checking.

  12. Prediction – The new stadium will never be started while Tom Hicks is an owner of the club.

  13. So is that right that DIC formally made Gillett an offer that Hicks vetoed? According to Oliver Kay that happened in March. I must admit I thought that for all the talk nothing had actually been formally offered.

  14. Hey ain’t that incredible. Patrik Berger has been sacked for telling Barry to join LFC.

  15. Tommy Smith has said that it looks It looks likely that Peter Crouch, John Arne Riise and Jermaine Pennant will be on their way, and Xabi Alonso could join them.

  16. I have just got this email fro Share Liverpool saying that John Barnes is backing Share Liverpool.

    Liverpool FC Legend John Barnes announces ShareLiverpoolFC support
    One of Liverpool FC’s greatest-ever players, John Barnes, has given his backing to ShareLiverpoolFC in their quest for fan ownership of the club.

    Part of the last title-winning LFC team in 1989/90, John says:
    “I’ve been saddened by what’s been happening in the boardroom lately, and I think it’s time for things to change. Liverpool Football Club is part of the community, and it’s time our magnificent supporters had a say in how the club is run.”

    “That’s why I’m delighted to back ShareLiverpoolFC. If democratic ownership works for clubs like Barcelona and Bayern Munich, why can’t it work here?”

    Affectionately known as “Digger”, John joins his old team-mates John Aldridge and Phil Thompson in declaring his support for the ShareLiverpoolFC concept. They are amongst nearly 40,000 people who have registered an interest through the ShareLiverpoolFC website http://www.shareliverpoolfc.com

    With the ownership troubles at LFC reigniting recently, ShareLiverpoolFC has been gaining momentum and high levels of media interest. On Saturday, a feature appeared in the main local paper, the Liverpool Echo, with a tear off coupon allowing many local fans who may not use the internet the chance to get to know all about ShareLiverpoolFC and to register their interest. You can see the online version of the article at: http://www.liverpoolecho.co.uk/liverpool-fc/liverpool-fc-news/2008/05/03/john-barnes-backs-share-liverpool-fans-buy-out-100252-20856025/

    As the season draws to a close, sadly without a trophy this year, the work to get fans on the road to ownership of our great club will continue. We’re very optimistic about the prospects.

    We are developing closer relations to the Spirit of Shankly movement too. ( http://www.sonsofshankly.com/ ). One of the SOS leading lights, Peter Furmedge, is on the Board of ShareLiverpoolFC, and we expect former SOS Chairman, Nicky Alt, (who recently stepped down from that role) to join the SLFC Steering Group this week. We want to make sure both organisations work in tandem; we share a common goal: Our Club owned by, and responsible to, the Liverpool fans.

    The website is currently being entirely rebuilt, so we can offer a much more interactive facility for you, and deal much easier with the substantial database we now possess. For those of you who might be interested in a form of ‘group membership’ (where fans can join together to purchase a single share in LFC) we hope, alongside SOS, to develop proposals for ‘share clubs’ which will be formerly registered, along lines similar to lottery syndicates.

    There’s much to do. We’ll be in touch soon.

    With thanks again for your patience and support,

    Rogan Taylor,
    On behalf of ShareLiverpoolFC

    http://www.shareliverpoolfc.com

  18. Thanks for posting that Anthony. Good to see progress being made on Share Liverpool FC.

    A £5000 (or portion) investment now to buy the club will pay back any fan in spades over the course of their life – cheaper tickets etc and pride in being part of something great – this club.

    (We saved ourselves £2000 plus by not getting to Moscow – just one game. £5000 buys you a lifetime of memories (happy ones hopefully).

    Share Liverpool FC can happen! Lets support it however we can. Otherwise we could be forced into a continuing cycle of different owners raping the club for every penny WE put into it.

  19. If the LFC one is succesful then there will be a revolution in the way clubs are run in this country. It will probably end the way the fans get shafted by the suits who have a licence to print money at our expense.

  22. Texas_Dawg:

    “It’s not going to work though, Martin.”

    Hypothetically Dawg, if the fans, Rafa, and say for example Jamie Carragher and Steven Gerrard all came out strongly opposed to Hicks would he still not back down?! Basically the whole club publicly stating they are against him, would that not even change his mind?!

    Hypothetical but your statement about Gillett: “Pretty insane and sad that a guy would go to such lengths all just to spite someone.” Could easily be changed to read in relation to Hicks as “Pretty insane and sad that a guy would go to such lengths all just to MAKE SOME CASH”. 😉

  23. @Anthony Fakir

    Great link.it’s brightened up my day. What makes it even more memorable for me is that at half time i was stood waiting to get a drink in the neutral area of the ground(supposedley neutral but was probabley 4:1 reds) and AC Milan fans around us were ripping the piss out of us in English! One of them said we were the worst team theyve ever seen play in a final.If i could have seen there faces at the end of the game that would have capped it all off. Best night of my life and the 4 hour trip on the bus to and from the ground was well worth it

  24. The involvement of the players is an interesting if risky strategy.

    If however it did lead to a successful outcome, in terms of the ownership, it would provide a huge amount of positive momentum that we could take into next season.

  26. Hypothetically Dawg, if the fans, Rafa, and say for example Jamie Carragher and Steven Gerrard all came out strongly opposed to Hicks would he still not back down?! Basically the whole club publicly stating they are against him, would that not even change his mind?!

    Hypothetical but your statement about Gillett: “Pretty insane and sad that a guy would go to such lengths all just to spite someone.” Could easily be changed to read in relation to Hicks as “Pretty insane and sad that a guy would go to such lengths all just to MAKE SOME CASH”.

    True and fair points, Martin.

    I think if it came to that Hicks would probably consider selling. I don’t think it would come to that though. The hypothetical whereby Gillett — the owner that doesn’t want to be involved with the club anymore as it is — stays on just to throw the club into the ditch in order to spite Hicks looks a lot more likely right now. Hopefully it won’t come to that though.

  27. Personally I would be disgusted if players started taking sides. Sure they probably know more than us seeing as they’re at the club on an almost daily basis, but what suddenly makes them boardroom experts? I also think they’d probably find themselves out of the door pretty quickly. Can you imagine civil war at Anfield with even the players occupying different halves of the dressing room and not talking to each other?

    Encouraging everyone to resolve the issue and find a solution, fair enough, because that’s what we desperately need. But even then they’d probably be wise not to forget who their employers are before they get too carried away.

  28. Well, here’s a bit of news to chew over. Not sure if it’s good news or not, though…

    I just found out that there’s a rumour floating around amongst sports journalists over here who follow ice hockey that Hicks is trying to sell the Dallas Stars to raise the funds to finance his buyout of Gillett. This surely is a sign of his growing desperation but also his determination. Needless to say, the credit crunch is exerting pressure on both their corporate empires, which may force the hands of both in different kinds of ways (eg. how long can Gillett afford to hold out if Hicks mounts a court challenge to Gillett’s sale to DIC? And on the other side, how long can Hicks prolong the sale between Gillett and Dubai/DIC if he continues to run out of financing options?).

  29. I just found out that there’s a rumour floating around amongst sports journalists over here who follow ice hockey that Hicks is trying to sell the Dallas Stars to raise the funds to finance his buyout of Gillett. This surely is a sign of his growing desperation but also his determination. Needless to say, the credit crunch is exerting pressure on both their corporate empires

    Hicks floated the sale of the Stars several years ago, Julie, but ultimately decided to keep the team. That could be the genesis of that rumor.

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