Arsenal Holdings plc is to lose its NEX Exchange listing after majority owner Stan Kroenke’s vehicle KSE UK Inc announced it was taking the company private. KSE holds 41,743 shares or 67.09% of Arsenal.
The takeover price at £29,419.64 per share is below the asking price for Arsenal shares of £32,000 per share prior to the Kroenke move.
But KSE UK Inc has secured the agreement of Red & White Securities, the Alisher Usmanov holding vehicle in respect of its 30.05% stake. As the combined holding exceeds the 90% threshold, KSE would be able to compulsorily acquire smaller holders. Hence the issue of a premium to the asking price appears beside the point.
KSE is funding the £602.4m cost of the minorities buyout via a £557m bridging loan from Deutsche Bank with £45.4m from Mr Kroenke’s cash reserves.
Unlike previous football acquisitions, i.e. Mr Glaser’s 2005 takeover of Manchester United, it appears Mr Kroenke is not seeking to mortgage Arsenal post acquisition. “The offer is not being funded by way of any debt finance….for which payment of interest on, repayment of, or security for any liability will depend on the business of Arsenal” according to the disclosure.
The Arsenal Supporters Trust (AST) called the development “a dreadful day” for the Gunners. “Mr Kroenke will….take detrimental actions such as paying management fees and dividends without checks or balances” said AST.
The Arsenal listing was always an anomaly with a tiny, illiquid free float that made the stock un-investable for the vast majority. What can supporters make of this? Can we believe Mr Kroenke is not going to refinance the DB bridging loan with a mortgage as he claims? Too early to be definitive in our view.
Even if the wealthy American does not leverage Arsenal, arguably Arsenal’s low profitability, dependent on unpredictable player trading (62% profit) makes this hard anyway. Arsenal would struggle with £420m of extra debt.
The new ownership structure, a privately owned Delaware incorporated holding company will reduce transparency relative to the NEX Exchange listing. The legacy of US holding companies in football, Liverpool and Manchester United is hardly inspiring. But Arsenal’s supporters have struggled for some time to get their voices heard in its corridors of power.
At the November interims, Arsenal held net cash balances of £137.6m. This could be reduced to a working capital requirement (possibly £50m). The cash balance should remain intact short term, as the board is not appointing lawyers and advisers to fight this acquisition. The disclosure says the Arsenal board of directors will not be changed as a result of the takeover. Another oddity.
Short-term the deal is unlikely to change the club’s operations. It will not lead to a player spending spree. Mr Kroenke is extending control and by moving the ownership to America rids himself of competing shareholders, distances himself from supporters spending visions and UK corporate governance.
Please be aware that the following disclosures of Material Interests are relevant to this research note:
Arsenal Holdings – Relevant disclosures: N/A
The report’s author certifies that this research report accurately states his personal views about the subject securities, which is reflected in the ratings as well as the substance of the reports.
Collins Sarri Statham Investments Ltd (CSS) does not in any of its publications take into account any particular recipient's investment objectives, financial situation, and specific needs and demands. Therefore, all CSS publications are, unless otherwise specifically stated, intended for informational and/or marketing purposes only.CSS shall not be responsible for any loss arising from any investment based on a perceived recommendation.
No publication (including recommendations) shall be construed as a representation or warranty that the recipient will profit, nor avoid sustaining losses, from trading in accordance with a trading strategy set forth in a publication.
This research is non-independent and is classified as a Marketing Communication under FCA rules detailed in their Conduct of Business Rulebook (COBS). As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition of dealing ahead of the dissemination of investment research outlined in COBS 12.2.18.
Trading in the products and services offered by Collins Sarri Statham Investments Ltd (CSS) may, result in losses as well as profits as the value of investments may go down as well as up. You may not get back the full amount you have invested. Any reference to past performance should not be viewed as an indication of any future performance. Investments held in overseas markets are subject to the effects of changes in exchange rates which will impact on the value of the underlying investment. Investments made in AIM and penny shares carry an increased risk due to the difficulty in creating a market in these shares. There may be a substantial difference in the buy and sell price. Leveraged products such as Contracts for Difference (CFDs), derivatives, commodities & Foreign Exchange (FX), carry a higher risk to your capital. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider (Saxo Bank). You should consider whether you understand how CFDs, FX or any of our other products work and whether you can afford to take the high risk of losing your money. Losses can exceed deposits on some products.
The information contained herein is based on materials and sources that we believe to be reliable however we make no representation or warranty, either express or implied, in relation to the accuracy, completeness or reliability of the information contained herein. Please note that the figures shown may, in some instances, be rounded to the nearest penny. Prices can move sharply from those quoted in this document. Current prices can be verified by calling one of our brokers. CSS is under no obligation to update the information contained herein. Neither CSS, nor its affiliates, nor its employees shall have any liability whatsoever for any indirect or consequential loss or damage arising from the use of this document.