Fisk’s final word, heads he wins, tails we lose
Clarkeonenil.co.uk 16/9/12
By Chris Fisk
A few weeks ago a lucky couple from the UK won the Euromillions Rollover Jackpot. Over £148m, making them richer than the Beckhams. In the Fisk household it sparked the inevitable ‘what would we do’ game, with me and Mrs F.
‘What would you do with £148m?’
‘Buy Leeds United’
‘Will we have enough?’
‘Should have. Might need further investment to improve the squad’
‘Could you deal with Ken Bates?’
‘Not sure, he’s a ***** in my humble opinion’
‘Might not be enough money then…’
A few days later, Mrs F came home with a brand new pair of blue and red suede high heels (I kid you not)
‘I know you don’t like anything with red on, but do you like them?’ she said, tottering round the bedroom.
‘No’
‘I got them in a sale, should have been £120, got them for £30, do you like them now?’
‘They’re improving’
Bear with me; these seemingly unconnected events sum up the takeover of Leeds United. At around the same time, (as the purchase of the suede high heels) the Bearded Wonder announced that he had entered into a ‘’period of exclusivity’’ with an unnamed potential buyer of Leeds United who would be carrying out a process of ‘due diligence’.
As we all know, the process of due diligence has taken so long that the period of exclusivity has expired. In the complete absence of an alternative buyer however, the hitherto un-named although not unknown, potential buyer, continues to enjoy ‘only kid on the block’ status.
So, what could possibly have gone wrong?
Well, obviously, this will be about money, although not necessarily the asking price. We are told it’s about ‘indemnities’, let me try explaining.
Any takeover will start with ‘Heads of Terms’. This is a signed agreement, simpler than a sale/purchase contract, setting out the bones of a deal.
It will set out who is buying what from whom, the price, timescales and a list of ‘subject to’s’. One of which is certain to be that the buyer is allowed to carry out due diligence. A period of access to information about the seller and his business.
The information a buyer requires will vary by industry type. But typically will include any contracts that the seller holds or is party to. In other words, obligations that will then be assigned to the buyer. These will include contracts with employees and trading partners.
It will also include an audit trail to ensure that the seller has title to the assets that are being transferred and an audit as to the trading performance of the seller, particularly between the last set of audited accounts up to the sale date. Even from the over-simplistic view of due diligence above it’s clear that to carry out 100% due diligence would take too long to get a deal off the ground.
Therefore, the buyer does what he can as quickly as possible to satisfy himself, and then asks for warranties and indemnities from the seller to cover himself against any nastiness that come out of the woodwork later.
The warranties and indemnities will set out a formula for compensation to the buyer should something arise later that he could not reasonable have foreseen. This would include such things as unknown or faulty contracts, defective title to assets and material changes to trading performance.
For any takeover therefore there’s never 100% certainty, there is always a ‘gap’. It’s narrowed by the warranties and indemnities but at the end of the day, as the seller never gives enough comfort, and then buyer takes a punt on the difference.
This is not a difficult concept to grasp; we all do it every time we buy something. There is a price to pay and there’s a gap to bridge. All kinds of things affect the size of the gap. Particularly the size of the transaction against our wealth, the warranty of performance of what we are buying, and our emotional involvement in the purchase.
This is why we don’t think twice about repeated purchases of cheap essential goods, but may mull over the buying of a new car for months before making a seemingly erratic and impulsive decision.
When Roman Abramovich bought Chelsea from Ken Bates I’m certain that the process of due diligence was nothing like the one undertaken by the potential buyers of Leeds United. There would have been a much smaller gap to bridge with indemnities. The takeover of Leeds United has not stalled because of problems with indemnities; it has stalled because the gap is too wide.
Why is the gap too wide? For any one of the following reasons:
The complex structure of Leeds United has been done by others much better than I could do and the cold-blooded nature of Bates comes as no surprise to anyone. It’s the nature of the buyer that interests me right now.
I was mystified as to why the ‘buyer’ sat back during the purchase of the bunch of mediocrity than now comprises the bulk of our first team squad. Clearly the transfer window had to be dealt with but it’s unusual for a potential buyer to allow such trading. Either they approved the purchases which in itself is worrying, or they weren’t close enough to a deal to exert any influence.
Ironically, it could be argued that due to the delay, our poor summer trading and the mediocre start to the season, the Club is worth less today than it was when the due diligence started. This could be a further complication.
But to blame ‘indemnities’ and seemingly to throw the blame towards Bates is to me a little bit cheeky.
I’m convinced that Bates is ready to sell and wants to sell. I was tipped off two years ago that this was the case and since then even his rhino-like skin must have been hurt by the constant abuse from the dedicated minority of our moronic support. Yes, he’s ready to go; the problem is with the buyer.
You don’t go into a deal with Bates and then start quibbling about indemnities. You don’t go into a deal with Bates and hope to make a quick buck. You go in with your eyes wide open and get ready to be fleeced. All in the name of coming out with something that you want so desperately that you don’t mind having your pants taken down and your backside being slapped.
No, the problem isn’t Bates, not unless someone has been mortally offended by being called Sheik Rub-a Dub. The problem is that buyer doesn’t want Leeds United badly enough to take the financial and emotional punt.
As Mrs F so eloquently described it; you need an awful lot of money these days, to buy Leeds United.
By Chris Fisk
A few weeks ago a lucky couple from the UK won the Euromillions Rollover Jackpot. Over £148m, making them richer than the Beckhams. In the Fisk household it sparked the inevitable ‘what would we do’ game, with me and Mrs F.
‘What would you do with £148m?’
‘Buy Leeds United’
‘Will we have enough?’
‘Should have. Might need further investment to improve the squad’
‘Could you deal with Ken Bates?’
‘Not sure, he’s a ***** in my humble opinion’
‘Might not be enough money then…’
A few days later, Mrs F came home with a brand new pair of blue and red suede high heels (I kid you not)
‘I know you don’t like anything with red on, but do you like them?’ she said, tottering round the bedroom.
‘No’
‘I got them in a sale, should have been £120, got them for £30, do you like them now?’
‘They’re improving’
Bear with me; these seemingly unconnected events sum up the takeover of Leeds United. At around the same time, (as the purchase of the suede high heels) the Bearded Wonder announced that he had entered into a ‘’period of exclusivity’’ with an unnamed potential buyer of Leeds United who would be carrying out a process of ‘due diligence’.
As we all know, the process of due diligence has taken so long that the period of exclusivity has expired. In the complete absence of an alternative buyer however, the hitherto un-named although not unknown, potential buyer, continues to enjoy ‘only kid on the block’ status.
So, what could possibly have gone wrong?
Well, obviously, this will be about money, although not necessarily the asking price. We are told it’s about ‘indemnities’, let me try explaining.
Any takeover will start with ‘Heads of Terms’. This is a signed agreement, simpler than a sale/purchase contract, setting out the bones of a deal.
It will set out who is buying what from whom, the price, timescales and a list of ‘subject to’s’. One of which is certain to be that the buyer is allowed to carry out due diligence. A period of access to information about the seller and his business.
The information a buyer requires will vary by industry type. But typically will include any contracts that the seller holds or is party to. In other words, obligations that will then be assigned to the buyer. These will include contracts with employees and trading partners.
It will also include an audit trail to ensure that the seller has title to the assets that are being transferred and an audit as to the trading performance of the seller, particularly between the last set of audited accounts up to the sale date. Even from the over-simplistic view of due diligence above it’s clear that to carry out 100% due diligence would take too long to get a deal off the ground.
Therefore, the buyer does what he can as quickly as possible to satisfy himself, and then asks for warranties and indemnities from the seller to cover himself against any nastiness that come out of the woodwork later.
The warranties and indemnities will set out a formula for compensation to the buyer should something arise later that he could not reasonable have foreseen. This would include such things as unknown or faulty contracts, defective title to assets and material changes to trading performance.
For any takeover therefore there’s never 100% certainty, there is always a ‘gap’. It’s narrowed by the warranties and indemnities but at the end of the day, as the seller never gives enough comfort, and then buyer takes a punt on the difference.
This is not a difficult concept to grasp; we all do it every time we buy something. There is a price to pay and there’s a gap to bridge. All kinds of things affect the size of the gap. Particularly the size of the transaction against our wealth, the warranty of performance of what we are buying, and our emotional involvement in the purchase.
This is why we don’t think twice about repeated purchases of cheap essential goods, but may mull over the buying of a new car for months before making a seemingly erratic and impulsive decision.
When Roman Abramovich bought Chelsea from Ken Bates I’m certain that the process of due diligence was nothing like the one undertaken by the potential buyers of Leeds United. There would have been a much smaller gap to bridge with indemnities. The takeover of Leeds United has not stalled because of problems with indemnities; it has stalled because the gap is too wide.
Why is the gap too wide? For any one of the following reasons:
- The due diligence is inconclusive – we know that the financial structure of our Club is complex
- The asset register is incomplete
- There are contracts and obligations that the buyer is not sure about
- Trading performance is difficult to audit or predict
- There is not enough emotional commitment or chemistry
- The purchase is too heavy for the buyer in relation to his wealth
The complex structure of Leeds United has been done by others much better than I could do and the cold-blooded nature of Bates comes as no surprise to anyone. It’s the nature of the buyer that interests me right now.
I was mystified as to why the ‘buyer’ sat back during the purchase of the bunch of mediocrity than now comprises the bulk of our first team squad. Clearly the transfer window had to be dealt with but it’s unusual for a potential buyer to allow such trading. Either they approved the purchases which in itself is worrying, or they weren’t close enough to a deal to exert any influence.
Ironically, it could be argued that due to the delay, our poor summer trading and the mediocre start to the season, the Club is worth less today than it was when the due diligence started. This could be a further complication.
But to blame ‘indemnities’ and seemingly to throw the blame towards Bates is to me a little bit cheeky.
I’m convinced that Bates is ready to sell and wants to sell. I was tipped off two years ago that this was the case and since then even his rhino-like skin must have been hurt by the constant abuse from the dedicated minority of our moronic support. Yes, he’s ready to go; the problem is with the buyer.
You don’t go into a deal with Bates and then start quibbling about indemnities. You don’t go into a deal with Bates and hope to make a quick buck. You go in with your eyes wide open and get ready to be fleeced. All in the name of coming out with something that you want so desperately that you don’t mind having your pants taken down and your backside being slapped.
No, the problem isn’t Bates, not unless someone has been mortally offended by being called Sheik Rub-a Dub. The problem is that buyer doesn’t want Leeds United badly enough to take the financial and emotional punt.
As Mrs F so eloquently described it; you need an awful lot of money these days, to buy Leeds United.
