Liverpool takeover explained: David Maddock makes sense of the mess at Anfield
This will obviously come as a shock to many people, but the categorical fact of the matter is, Liverpool Football Club has been sold.
When you read this morning that Peter Lim, or Mill Financial or Kenny Huang, or Uncle Tom Cobley is contemplating/considering/ready to/prepared to/has made a bid for control at Anfield, then ignore it.
They can not enter a bidding process that has closed. They can not now offer more money, or better terms, or the promise of a brighter future, because the process has been completed and the club has been sold.
They all had their chance over the past three years, but now a 100 per cent binding agreement has been signed between the board of Kop Holdings, which effectively runs LFC, and New England Sports Ventures (NESV), to complete a sale at a price of £300million.
There is only one condition of that sale, which is that the board confirm, with a High Court judgement, that they were acting lawfully in agreeing that sale. That is what the cases to be heard from today are about, and that is what they will ultimately ascertain.
To explain this in simple terms for you, let us rewind a week. Last Monday, a board meeting was called at Anfield to consider two offers for the football club. After months of searching, Chairman Martin Broughton and Barclays Capital had finally brought two competing bids to the table.
They were full and final offers from NESV and a Singapore businessman Peter Lim, and the board had to decide whether to accept an offer, and if so, which one. The board – made up of five people – would operate on a simple voting majority, so if three members agreed, a sale could proceed.
Just before that meeting got underway, Tom Hicks, via a conference call, came on the line, and in rather comical circumstances called an emergency motion to remove two members of that board, Christian Purslow and Ian Ayre.
He asked for all those in favour to say “aye”. One voice did – his business partner and co-owner of Liverpool, George Gillett. The other three members of the board didn’t say aye; they were Purslow, Ayre and chairman Martin Broughton.
Hicks then moved to replace Purslow and Ayre with his son Mack, and Mack’s assistant, Lori Kay McCutcheon. He then put the phone down. Broughton, as chairman, immediately responded by telling Hicks he didn’t have the authority to change the board, and explained to him that the board meeting would go ahead as planned.
In that meeting, Purslow and Ayre moved to accept an offer from NESV, and Broughton lent his casting vote in favour of the motion, thus offering a simple majority in the absence of any votes cast by Hicks or Gillett.
Agreements were struck and contracts signed with NESV, and they are full and binding. The majority on the board believed they had a right to make that agreement, and made it on condition of their right being upheld.
In the meantime, Hicks went ahead and reconstituted the board as he voted, and then he, Gillett, his son and his son’s assistant voted to reject the two offers on the table because they ‘undervalued’ the club. You may be thinking by now this wasn’t a board meeting but a child’s tantrum, but this is the way it happened.
Without going too deep into the legal argument, Broughton, the chairman, believed he had a contractually binding agreement – signed by Hicks and Gillett when they brought him in as chairman - to not only have sole responsibility to hire and fire board members, but to also sell the club as he saw fit.
Hicks and Gillett, for their part, believe that – as owners and therefore shareholders of Liverpool – company law gives them the right to remove directors. The simple question then is; which has precedent, contract or company law?
The case in the High Court today against Hicks is being brought by RBS – the club’s bankers - and not Broughton, because the contracts were signed with RBS and not Broughton.
If they establish the right of the contract to stand, then Liverpool’s board will follow in the court by asking for a declamatory judgment in a separate parallel process, that confirms the right to sell the club.
Boiled down even more, the whole process will decide which board was legal – the one with Purslow and Ayre that wants to sell at £300m, or the one without, that doesn’t want to sell at £300m.
Got that? Good. Because you’re going to be hearing a lot more of it. The RBS v Hicks case is due to be heard today by Mr Justice Floyd, in Court 16. But he has reserved the right to pass the case on to another judge on the Chancery Division, which is lawyer-speak for explaining it could takes days or even weeks.
The obvious question you will ask is, who will win? It basically depends on the mindset of the judge, but here is an opinion from an expert, for what it is worth.
Richard Curtin, special counsel at Faegre & Benson LLP, explained yesterday that the case will essentially come down to the wording of the contract – the ‘paperwork’ - signed by Hicks and Gillett and RBS, and he argued:
"I will be surprised if RBS got their paperwork wrong. I would also comment that they are likely to have explored every possibility in preparation for the dispute at court and whatever ramifications could follow.”
So what he is saying is the RBS should win. If they win, Broughton gets his declamatory judgement confirming the right to sell the club. And by now you know what happens after that. Yep…because the club is already sold, it stays sold, and NESV will start to implement their plans of reviving Liverpool Football Club.
This does raise several other questions though, the most obvious being why the hell would Hicks and Gillett have signed the contract with RBS in the first place, when it meant they could be outvoted by Broughton, Purslow and Ayre, and have the club sold from under them at a huge loss (£150million to be precise)?
Quite simply because they thought it would never come to that. Broughton, as chairman would have a casting vote, and Hicks was introduced to him by a mutual close friend, Alan Klein. So he assumed, because of the old boys’ network, the chairman was in his pocket and would always vote with him and Gillett, always offering a majority against Purslow and Ayre.
What he didn’t bank on was the other two directors – Purslow and Ayre – being so determined to sell the club to remove his malign ownership.
As chairman, Broughton has a duty to consider the best interests of the business, even ahead of its owners. So it was Purslow and Ayre’s greatest triumph to persuade him that the best interests of the club and its fans – who are emotional if not financial stakeholders – was to sell at the best available offer.
Which brings us to one final point, those apparent bids that have emerged in the last week which would value Liverpool at higher than the £300million NESV have paid to buy the club.
Peter Lim, through associates apparently, claims to have made a ‘better offer’. Mill Financial – who now control Gillett’s stake in Liverpool because he defaulted on loans to them, are also rumoured to be ready to make a ‘bid’, as is the mysterious Mr Huang.
And yet, after Broughton and Barclays Capital – one of the most respected financial companies in the world – had scoured the globe looking for bids and repeatedly asking people if they were interested, they came up with two credible offers, but at a similar level.
One was NESV, the other Lim. They chose New England because of their track record with the Boston Red Sox, and no doubt because Lim has a rather tricky connection with Manchester United. Lim apparently has a ‘love affair with United’, and he also crucially has a large business partnership with the Old Trafford club back in Singapore.
So, the last question you will ask, is why have they come out of the woodwork now, when it is too late? Again, simple answer. Because they are not hoping to profit.
Some will be put up to it by Hicks, who will try and argue in court that the £300million is not the best offer. If, miraculously, people are saying they will offer more, it will support his argument. And Mill Financial, for example, may have more chance of getting their money back from Gillett, which explains entirely their presence in the process.
Others will simply be doing it because they can see a business opportunity. They are aware the club is sold, but they know too that should RBS and Broughton fail to win their case the sale to NESV is blocked.