Leeds United takeover: Funding remains elephant in room - Hay
By Phil Hay
For the first time, the basic details of the offer which may or may not give GFH Capital control of Leeds United are relatively clear: the company is acting as the buyer and intends to purchase every last share in the Elland Road club.
Precisely how it plans to do so is the burning issue in this endless saga. There is no private consortium behind the bid, the YEP was told this week, and GFH Capital is “the buyer in this acquisition, not an advisor.” What no-one is willing to clarify is how the funds for the takeover have materialised or where they will come from if or when the completion papers are signed. “Those details will emerge in due course,” said a source involved with GFH Capital yesterday.
For all that the firm have been described as “the buyers”, with plans to place at least one member of its senior management team on the board or directors at Elland Road, the idea of GFH Capital bidding alone or without significant sources of external support is failing to convince anyone with a clear view of the Dubai-based firm.
“If there’s no consortium as such then GFH Capital must have something in the way of an investment plan or strategic partners,” a market analyst in the Middle East told the YEP. “It’s the only way you could see this offer having substance. If the club are valued at £50million, I don’t think you’ll find that amount of money floating around in (GFH Capital’s) accounts.”
Leeds have been reticent about the takeover in the past fortnight, adding little to the comments made by chairman and majority shareholder Ken Bates before the club’s win over Nottingham Forest on September 22. A confidentiality clause is still in play, despite the fact that the nuts and bolts of the proposed deal are as public as they have ever been.
In contrast to United, GFH Capital have been active in the past week, leading the sort of PR drive which is necessary when the fine details of a football club buy-out come in for analysis.
The rhetoric from the company – representatives of which were in the UK yesterday – sounded positive enough: its offer to buy Leeds is not a leveraged deal and would burden the club with no debt; the takeover would also make a clean break from the current incumbents at Elland Road, though the YEP’s source made a point of saying that Bates had “done a very good job in laying the groundwork for the club to go forward.”
But the key detail still concerns money: does GFH Capital have it and, if so, what is stopping the sale and transfer of Bates’ shares? In all the comments made this week, there was no mention of specific timescales, aside from Hisham Alrayes – one of GFH Capital’s directors – saying that the Dubai-based firm and its parent company, Gulf Finance House (GFH), were willing to pursue their interest until the turn of the year.
Interviewed on CNBC Arabiya, a 24-hour news channel broadcaster from Dubai, Alrayes was asked at length about the GFH Capital’s bid to buy Leeds and spoke openly about the potential value of United as a business.
Despite the strong suggestion that the offer had not been made on behalf of a consortium of buyers, translations of Alrayes’ interview noted comments about a “small club of investors” who he said were involved in the process and, by insinuation, helping to fund it.
He said a “memorandum of understanding and a non-disclosure agreement has been signed (by GFH Capital) to organise the deal, as well as manage the takeover of Leeds United.
“This deal is being prepared by the company itself and a ‘small club of investors’ who are there with GFH to finalise or complete the takeover of Leeds before the end of the year.
“Today Leeds is debt-free. The current administration and club leadership has been able to provide diversified income and has been able to meet all obligations. The financial health of the club is very good in comparison with other Championship or even Premier League clubs.
“Our target was to get into a club which was in a good financial position, and Leeds was that club. It’s debt free and its total revenue reached up to £30million in 2011.
Furthermore, it has diversified income and with the (financial value of) media rights being increased in the Premier League, reaching the Premier League will cause a leap in the club’s revenue. So this makes it a great investment for anyone entering into this deal.”
Asked about the need to pay for and maintain a competitive playing squad at Elland Road, Alrayes replied: “There’s a budget put in place to invest, plus the original investment for buying the club.”
GFH Capital has made repeated references to the financial income earned by Premier League clubs from television broadcast rights, a factor on which its strategy appears to be based.
Alrayes said: “Today the club’s market value is around £50-60million and if the club reaches the Premier League then the market value will increase.
“Clubs in the Premier League are valued at around £150-200million according to the market valuation. The media rights, which were increased in the recent past, are estimated at £60million and made clubs in the Championship a very good investment.
“The Premier League has its own circumstances and debt and bigger costs but at Championship level you can purchase a club at a reasonable value and advance its value. As we call it from an investment side, growth capital – where you take it from a level to another level.”
Growth capital, or expansion capital, is generally defined as money secured through investment by firms whose own revenue is insufficient to fund major projects or expansion plans. Alrayes’ comments could be taking as meaning that someone else will put up cash which GFH Capital and Gulf Finance House don’t independently possess. How the cash is being sourced, neither company will say.
Supervision of banks in Bahrain falls to the Central Bank of Bahrain (CBB). The CBB was contacted by the YEP to ask whether it had been made aware of GFH and GFH Capital’s intentions and whether it had been asked to approve the approach to buy Leeds.
It was also asked if it knew the identity of the ultimate investors and whether GFH chairman Esam Janahi was using his personal wealth to help fund the deal. The CBB had not responded at the time of publication.