Leeds United in talkover talks: Legal expert warns Whites fans to exercise due caution
Yorkshire Post 29/6/12
By Phil Hay
The update on investment issued by Leeds United on Tuesday predicted that due diligence carried out by prospective buyers of the club would be a “fairly straightforward process”.
United’s board might foresee no obvious sticking points but their confidence under-played the nature of the work taken on by lawyers acting for the purchasers.
According to one specialist, due diligence on a club and a company as large as Leeds amounts to a “painstaking root-and-branch review” of every ounce of paperwork at Elland Road.
Richard Cramer, an expert in sports law with Front Row Legal, told the YEP earlier this week that confirmation of an exclusivity period granted to the unnamed party bidding to take control of Leeds implied that a deal had been agreed in principle and was perhaps as far forward as “90 per cent done”.
But Cramer has played down the assumption that a takeover at Elland Road is effectively a formality with due diligence underway, describing the process as “extremely sensitive and very complex”.
“I’ve seen people get right to the death in these situations and get cold feet at the last minute,” he said. “Due diligence is a case of buyer-beware – their chance to be as certain as they can be about a company’s strengths and its liabilities.”
Cramer’s view is that due diligence as extensive as that involving a club like Leeds would fall to a ‘Magic Circle’ company – one of the largest UK law firms based in London, among which Clifford Chance, Linklaters and DLA Piper are commonly listed.
“There are companies in Leeds with the man-power to handle the work,” Cramer said. “But you’d expect a job of this size to fall to a Magic Circle firm more often than not. These firms employ thousands of staff and have the resources needed to do due diligence within a certain timescale.
“The benefit of an exclusivity clause is that it usually gives a would-be buyer carte blanche to go through the books from front to back but most clauses also include a time frame or a deadline of some sort. That might well be the case with Leeds and these investors. Due diligence can’t be an endless process and you need an awful lot of people with the right expertise to carry it out efficiently and properly.
“Whoever is doing the work will be well paid for it but in my experience their main concern will be getting it right and making sure they don’t miss anything critical.
“The priority is to go through the sale-purchase agreement and highlight everything the buyer needs to be aware of and take into consideration – good and bad.”
Leeds United Football Club Limited – the club itself – is a profitable company which has yielded gains during every financial year since United’s administration in 2007. The most recent profit, for the 12 months up to June 30, 2011 came in at £3.5m, including an operating profit of almost £1m.
Leeds United Football Club Limited is wholly owned by Leeds City Holdings Limited, a company which in turn owns a number of other firms with connections to the club. Even the single matter of the wage bill at Elland Road goes far beyond the playing squad and football management team headed up by Neil Warnock.
“There’s a huge difference between buying a club like Oldham Athletic out of administration and buying a club like Leeds as they are now,” Cramer said.
“Administration is an asset sale where buyers have the flexibility to pick and choose which assets they want. With a share sale, you’re effectively buying the whole company and everything that comes with it. That’s why you need to be absolutely clear on how much money is coming in, how much is going out and what exactly you’re taking on.
“You need to study employment contracts, not just of players but of every member of staff. You need to analyse tax bills, rent, intellectual property, commercial agreements and sponsorship deals. You also need to know about any money the club are owed and any debts they have. All in all it creates a picture of how strong the business is and how successful it can be.
“Proper due diligence covers absolutely everything and it’s not an overnight process, not even close. It’s a painstaking root and branch review and the devil is always in the detail.”
The would-be investors granted access to the books at Elland Road are believed to have strong links to the Middle East, though United have made no comment on their identities or nationality.
In a statement released on Tuesday evening, the club said: “Leeds United can confirm they have granted an exclusivity period to enable a potential investor to carry out the appropriate due diligence. It is anticipated this will be a fairly straightforward process.
“Our discussions have left us very comfortable that they have the financial resources to support the club and that they will have no issues in satisfying the requirements of the Football League’s Owners and Directors Test, unlike many of the previous approaches we have had to endure.”
The mention of the Owners and Directors Test – a test which the Football League carries out on any individual who acquires a stake of 30 per cent or more in one of its member clubs – gave a clear indication that recent talks had been aimed at a full takeover. Bates is presently the majority shareholder at Leeds, with a 72.85 per cent stake.
Cramer said: “A buyer wouldn’t reach this stage unless they were set on completing the transaction. That doesn’t mean they’ll go through with it no matter what but exclusivity periods can cost a fee. Sometimes you have an agreement which states that if the buyer pulls out without reasonable justification, they have to pay the legal costs of both sides.
“It’s easy to assume that if someone is looking to buy a club they put an acceptable offer on the table and shake hands. But football is almost incidental to the structure of the organisation and the decision to buy. There’s much more to it than that.”
By Phil Hay
The update on investment issued by Leeds United on Tuesday predicted that due diligence carried out by prospective buyers of the club would be a “fairly straightforward process”.
United’s board might foresee no obvious sticking points but their confidence under-played the nature of the work taken on by lawyers acting for the purchasers.
According to one specialist, due diligence on a club and a company as large as Leeds amounts to a “painstaking root-and-branch review” of every ounce of paperwork at Elland Road.
Richard Cramer, an expert in sports law with Front Row Legal, told the YEP earlier this week that confirmation of an exclusivity period granted to the unnamed party bidding to take control of Leeds implied that a deal had been agreed in principle and was perhaps as far forward as “90 per cent done”.
But Cramer has played down the assumption that a takeover at Elland Road is effectively a formality with due diligence underway, describing the process as “extremely sensitive and very complex”.
“I’ve seen people get right to the death in these situations and get cold feet at the last minute,” he said. “Due diligence is a case of buyer-beware – their chance to be as certain as they can be about a company’s strengths and its liabilities.”
Cramer’s view is that due diligence as extensive as that involving a club like Leeds would fall to a ‘Magic Circle’ company – one of the largest UK law firms based in London, among which Clifford Chance, Linklaters and DLA Piper are commonly listed.
“There are companies in Leeds with the man-power to handle the work,” Cramer said. “But you’d expect a job of this size to fall to a Magic Circle firm more often than not. These firms employ thousands of staff and have the resources needed to do due diligence within a certain timescale.
“The benefit of an exclusivity clause is that it usually gives a would-be buyer carte blanche to go through the books from front to back but most clauses also include a time frame or a deadline of some sort. That might well be the case with Leeds and these investors. Due diligence can’t be an endless process and you need an awful lot of people with the right expertise to carry it out efficiently and properly.
“Whoever is doing the work will be well paid for it but in my experience their main concern will be getting it right and making sure they don’t miss anything critical.
“The priority is to go through the sale-purchase agreement and highlight everything the buyer needs to be aware of and take into consideration – good and bad.”
Leeds United Football Club Limited – the club itself – is a profitable company which has yielded gains during every financial year since United’s administration in 2007. The most recent profit, for the 12 months up to June 30, 2011 came in at £3.5m, including an operating profit of almost £1m.
Leeds United Football Club Limited is wholly owned by Leeds City Holdings Limited, a company which in turn owns a number of other firms with connections to the club. Even the single matter of the wage bill at Elland Road goes far beyond the playing squad and football management team headed up by Neil Warnock.
“There’s a huge difference between buying a club like Oldham Athletic out of administration and buying a club like Leeds as they are now,” Cramer said.
“Administration is an asset sale where buyers have the flexibility to pick and choose which assets they want. With a share sale, you’re effectively buying the whole company and everything that comes with it. That’s why you need to be absolutely clear on how much money is coming in, how much is going out and what exactly you’re taking on.
“You need to study employment contracts, not just of players but of every member of staff. You need to analyse tax bills, rent, intellectual property, commercial agreements and sponsorship deals. You also need to know about any money the club are owed and any debts they have. All in all it creates a picture of how strong the business is and how successful it can be.
“Proper due diligence covers absolutely everything and it’s not an overnight process, not even close. It’s a painstaking root and branch review and the devil is always in the detail.”
The would-be investors granted access to the books at Elland Road are believed to have strong links to the Middle East, though United have made no comment on their identities or nationality.
In a statement released on Tuesday evening, the club said: “Leeds United can confirm they have granted an exclusivity period to enable a potential investor to carry out the appropriate due diligence. It is anticipated this will be a fairly straightforward process.
“Our discussions have left us very comfortable that they have the financial resources to support the club and that they will have no issues in satisfying the requirements of the Football League’s Owners and Directors Test, unlike many of the previous approaches we have had to endure.”
The mention of the Owners and Directors Test – a test which the Football League carries out on any individual who acquires a stake of 30 per cent or more in one of its member clubs – gave a clear indication that recent talks had been aimed at a full takeover. Bates is presently the majority shareholder at Leeds, with a 72.85 per cent stake.
Cramer said: “A buyer wouldn’t reach this stage unless they were set on completing the transaction. That doesn’t mean they’ll go through with it no matter what but exclusivity periods can cost a fee. Sometimes you have an agreement which states that if the buyer pulls out without reasonable justification, they have to pay the legal costs of both sides.
“It’s easy to assume that if someone is looking to buy a club they put an acceptable offer on the table and shake hands. But football is almost incidental to the structure of the organisation and the decision to buy. There’s much more to it than that.”