September 30, 2017
On 29th September Arseblog ran a story claiming that Kroenke (the 67% shareholder of Arsenal) had made a bid to acquire Usmanov’s 30.04%.
Given I’ve consistently held the view that Usmanov will not sell his Arsenal holdings and join his business partner Farhad Moshiri at Everton I thought I’d update and perhaps clarify the reasons for maintaining this stance.
I’ve always held the view that Usmanov would find it difficult to attract a buyer to his 30% block of shares given Kroenke’s disdain for all other shareholders. The Arseblog story above suggest this is the case citing two potential buyers of Usmanov’s shares not wishing to proceed given Kroenke’s refusal to offer even a single Board seat.
Hence the claim that Kroenke has offered to acquire Usmanov’s shares himself. Why would he do that? Well some believe that the taking the club private is sufficient motivation, he’d not have to deal with small shareholders nor hold General Meetings. In addition, he could draw down fees and use the club as collateral for debt to fund other ventures.
From my perspective, this seems like a fairly small and inconsequential list of benefits in return for an investment costing something in the region of £600-700m. Finding the £600-700m shouldn’t present a problem, he’s worth more than £6bn in his own right, and of course, married to Alice Walton, worth something approaching £30bn. Equally these figures question why taking fees from the club, or indeed using the club as collateral are such big deals. Kroenke owns 30 million square feet of real estate, 2 million acres of land across North America, plus LA Rams, Denver Nuggets, Colorado Avalanche and Colorado Rapids all of which could be collatoralised if required.
Why would Arsenal cost so much? Well, using the latest financial results released this week, Arsenal with a current market cap of £1.28bn, probably have a “deal” value north of £1.8bn. Using the Markham multivariate model creates a figure of £1.78bn.
I think it’s fair to add that strategically it is not in Kroenke’s interests to allow Usmanov leave Arsenal and potentially create another significant competitor to Arsenal at a time when their usual occupation of a Champions League spot is under more pressure than at any time in the last 20 years.
It’s said that Usmanov is increasingly tired of not being able to influence matters at Arsenal and I don’t disagree that it must be an incredibly frustrating situation. Yet it’s a situation that has existed for more than 6 years, he’s always maintained that his Arsenal holdings are a family investment for future generations to enjoy (or perhaps endure!).
Those that believe Usmanov will sell, see Usmanov then joining Moshiri at Everton, and again for the avoidance of doubt let’s examine this a little further.
Firstly, I believe had Usmanov had any intention of joining Everton then the sequence of events would have been different. He would have sold his R&W holdings to Moshiri back in February 2016, allowing him to acquire Everton there and then and provide the investment capital desperately needed at the time to develop both the team and of course, the new stadium at Bramley Moore. There is no logic, in my opinion, to send Moshiri first with the plan to join him later.
Moshiri at Everton, what’s he done so far?
In addition to the above, let’s examine what Moshiri has done so far at Everton. After his acquisition of 49.9% of Everton shares from Bill Kenwright, Robert Earl, Jon Woods and Arthur Abercrombie, he immediately cleaned up the balance sheet with an unsecured loan of £80m with no repayment terms attached. This removed all secured debt and allowed the discussions with Peel (owners of Liverpool Waters, including Bramley Moore dock) to proceed. This led to the announcement in March 2017 of an agreement of heads of terms with Peel, “securing” in the words of Everton CEO Robert Elstone, the site for the development of the new stadium.
The new stadium is to be wholly funded by the creation of a SPV in conjunction with Liverpool City Council. Everton has to find the finance whilst Liverpool City Council provide a guarantee in return for receiving a guarantor fee of around £4m per year. The proposed financing is a 40 year debt package providing high security and an index linked annual return to the lender. In addition to the above, Everton must provide a significant rent deposit, at least in the early years of the debt financing.
Aside from the ongoing stadium financing, Everton have arranged a £60 million secured line of credit for working capital purposes with ICBC, the world’s largest bank by assets, wholly owned by the Chinese Government.
Neither of the above financing packages suggest the expected or imminent arrival of a second multi-billionaire owner at Everton.
Moshiri (or more accurately Blue Heaven Holdings in the Isle of Man) hold an options agreement to acquire the shares of Kenwright, Woods and Abercrombie. Once exercised this would give him a total holding of around 73%. In his first meeting with EFCSA, some months after his share acquisiton, Moshiri informed the Chairman of the EFC Shareholders Association that he had no intention of issuing more shares in the Company, and did not foresee the dilution of the more than 25% of Everton shares still in the hands of perhaps 1500 smaller shareholders.
Again it is difficult to square the arrival of a new significant investor with the above comments and share agreements in place.
The USM Finch Farm naming rights deal
The acquisition of the naming rights to Everton’s training ground by USM has been seen by some as evidence of Usmanov’s intent to become an Everton investor. It’s worth looking at this in greater detail.
USM is the holding company of Usmanov, Skoch and Moshiri. In January 2017, USM acquired the naming rights to Everton’s Finch Farm for the sum thought to be around £5m per annum. Let’s put that into context. This sum represents less than 3% of Everton’s expected turnover for 2016/17.
Not only that but it is inconsequential for USM. USM holds an enormous range of assets. Being a BVI company it is not possible to see what exactly the company holds and owns, but it is known for example that USM own 100% of Metalloinvest and 56.3% of Megafon, one of Russia’s largest mobile carriers. In the latest reports from Metalloinvest, in H1 2017 they had EBITDA of over US$ 1bn and net profits of US$ 585 million; Megafon paid USM more than £111m in dividends in the first half of the year. In addition USM has unspecified holdings in Baikal Mining Company, Mail.Ru Group, VKontakte, Odnoklassniki. Alibaba, JD.com, Xiaomi, Uber, Spotify, Airbnb, Zalando, Flipkart, Ola Cabs, Didi Chuxing, ZocDoc and Klarna. It is also a major investor in ESforce, owner of UTH Russia, Kommersant Publishing House, and Khimki Group.
The point I am making is that if the acquisition of naming rights is used as evidence of significant involvement by USM or Usmanov, it is plainly not the case.
So, there we have it. My view that Usmanov stays at Arsenal and therefore cannot become an investor at Everton remains unchanged. It is a view backed by examination of the structures in place and proposed future financing of Everton, a view as to what is happening at Arsenal, and also backed by Usmanov’s own comments and commitment to Arsenal.
My view may turn out to be totally wrong and I’ll take the criticisms for it on the chin if so, that is one of the beauties of both sport and business, the unexpected can happen, however all the evidence suggests that it is extremely unlikely.
Time will tell, thanks for reading.