Saved? Liverpool convinced that £300m debt-free deal will succeed

Hicks and Gillett prepare for High Court battle in last effort to avoid humiliating exit
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The Independent Online

The Liverpool owners Tom Hicks and George Gillett are on the brink of being forced out without a penny of their £144m investment, with the club hopeful last night that a deal could be concluded in time for the Merseyside derby at Goodison Park a week on Sunday.

The preferred bid, from New England Sports Ventures, proposes to wipe out the club's £200m debt at a stroke with their planned takeover, but Hicks and Gillett will not go without taking their increasingly bitter fight to the High Court. In the next week they will attempt to prove that the proposed sale of the club to NESV – owners of the Boston Red Sox baseball team – is illegal.

Liverpool's non-executive chairman Martin Broughton yesterday said it was possible that Hicks and Gillett will convince a judge that the new £300m bid – which comes with written undertakings from NESV that they will not load the club with debt in the future – should be dismissed, because two of the board members who approved it were summarily suspended by the Americans shortly before the meeting convened.

"You can never be 100 per cent confident when you go to court," Broughton said. "There is always the risk the judge will come to the opposite conclusion."

But Liverpool's case, to be put by their solicitors Slaughter and May, will centre on the undertakings, apparently legally binding, which Hicks and Gillette made to Broughton when he joined the board to find a buyer earlier this year, which was part of the Royal Bank of Scotland's agreement to extend the length of a £273m loan facility to the club.

The Americans also stand to lose £110m in personal guarantees if they win their court case and the club enters administration as a result of RBS foreclosing on the loan when a refinancing deadline falls a week tomorrow. Hicks and Gillett invested £144m using nominal shares placed through a Cayman Islands-based company.

For now, Broughton's attention is focused firmly on the court case, with a result expected "some time next week," he said. But by introducing NESV yesterday he insisted that all American investors should not be tarred with the same brush and that the new buyers, who narrowly edged out more prospective Asian purchasers, were making a cash investment which would render Liverpool's new £37m debt virtually the lowest in the Premier League.

The basic calculations are that since in recent good years Liverpool have made £30m profit but used £25m to pay off loan interest, the new interest payment of £1m a year would leave the club with £24m more per year to spend. The merit of the deal, which will be put in court, includes a sale figure which is 30 times Liverpool's annual profit before interest payments, though those profits have dropped to £15m in poorer seasons.

Broughton insisted that the borrowing levels carried by the Red Sox – the net figure is about $40m (£25m) and they are making about $150m (£94m) a year profit – also points to a culture of limited debt. "I think this is not a venture that thinks in terms of leverage and debt, it is a venture that thinks in terms of winning in sport," Broughton said. "Liverpool's balance sheet will be equity rich after this transaction.

"It is the single most important question. We wondered whether this question was asked last time round [when the club was sold to Hicks and Gillett in 2007]. We were never going to repeat that mistake."

Though John W Henry, who has close links to the Barclays president and chief executive Bob Diamond, has been presented as the figurehead of NESV, the prospective new owner constitutes a management group of 17 investors. Some of those individuals may be at Goodison next week if a deal is concluded that quickly.

NESV are considering an overhaul of Anfield taking the capacity up to 60,000 as well as relocation to a new stadium, though managing director Christian Purslow said that there are an abundance of finance houses ready to provide money for such a facility. "In terms of paying down all the burden of debt, they have committed in this proposal to major player investment," Broughton said. "They are not going to say an amount, which I think is very sensible, but it backs up their commitment to development on the playing side, and commitment to building a new stadium.

"They are going to look at a new stadium but they have experience at Boston of redeveloping an old stadium and they just want to be sure they have exhausted all options before deciding on which one, but the commitment is they will do one or the other. Look at what they have done at Boston. Really quite a close parallel. They took an underperforming, iconic team and imbued in it a winning mentality. They have invested heavily in players and stadium development and they have delivered a winning team."

Of the new owners, Broughton added: "There is nothing wrong with being American. It doesn't matter where you come from, if you are leveraged, that's bad for a football club. The problem is the leverage, not the nationality." Asked if he thought a deal was possible by the time of the derby, he said: "It's going to be tight, but yes I do. I'm not promising though." On Hicks and Gillett, he said: "They chose, effectively, in my view, to suffer the great personal cost and walk away humiliated as a result. That's their choice and I think it's a pity."

The players in the deal

Tom Hicks and George Gillett

American owners of Liverpool who bought using debt finance and are resisting the sale of the club. Taking legal action to try and prevent the takeover.

Ian Ayres and Christian Purslow

Board members whose support Broughton relied upon to outvote Hicks and Gillett 3-2.

Martin Broughton

Liverpool chairman trying to force sale of club against the owners' will.

John W Henry

Head of New England Sports Ventures that owns Boston Red Sox and is bidding for control of Liverpool.

The endgame: how the deal will progress

Q. So Liverpool have been sold to the owners of the Boston Red Sox. Is it a done deal?

A. Not yet. The deal has been agreed in principle and in detail between Liverpool's chairman Martin Broughton and by the New England Sports Ventures firm headed by John W Henry, but it is subject to a legal challenge by Liverpool's incumbent American owners, Tom Hicks and George Gillett. NESV has tabled a bid worth £300m that will essentially wipe out most of Liverpool's debt – with cash, not borrowed money – and have promised they will develop a big new stadium, either at Anfield or elsewhere, location to be decided later. NESV has a good track record at the Red Sox, having transformed the franchise into a successful, profitable and valuable asset. But they can't and won't get their hands on Liverpool until Hicks and Gillett's legal challenge is dealt with.

Q. What are Hicks and Gillett arguing about?

A. They say Broughton had no right to agree a sale which will oust them with combined losses of £144m from their time in charge. They argue they sacked two of Broughton's fellow board members, Christian Purslow and Ian Ayre, before that pair and Broughton could vote 3-2 against them to sell the club. They will challenge in the High Court Broughton's right to have sold the club on that 3-2 vote. The case should be heard and finished before the end of next week.

Q. Which side will win in the High Court?

A. Broughton says his lawyers insist that legally only he had the power to sack board members, thus Hicks and Gillett cannot have legally sacked Purslow and Ayre, thus the 3-2 vote of sale to NESV was valid. Hicks and Gillett will argue Liverpool was their club and it cannot be sold beneath them. But Hicks and Gillett's case is likely to be undermined because according to Broughton, they effectively signed away control when he was appointed earlier this year. That was specifically so Broughton could find a buyer for the club and to appease the Royal Bank of Scotland, to whom Hicks and Gillett owe £237m.

Q. What if Broughton/Liverpool win the case?

A. Then NESV will take control of Liverpool sharpish, within a couple of weeks at most, and begin the process of trying to turn around the fortunes of the slumbering 18-times champions of England.

Q. And what if the Broughton camp loses?

A. If the judgement goes in the Americans' favour, the decision to sell to NESV will be nullified and two Hicks allies (including son Mack) will replace Purslow and Ayre on the board. Then, with a 15 October deadline to replay RBS looming, Hicks and Gillett will continue to make a last desperate attempt to find anyone in the world who will lend them about £300m to pay off RBS. They will almost certainly fail in that search.

Q. If they do fail, what happens next?

A. RBS will call in their loans, Hicks and Gillett will be unable to pay, the club ownership will transfer briefly to RBS, Liverpool could enter technical administration and RBS will seek a buyer (knowing there is one in place in the form of NESV).

Q. Will Liverpool be docked nine points by the Premier League for entering administration?

A. No, because they'll only be in administration for technical reasons and in all likelihood, NESV will buy the club within a day or two from RBS. The Premier League has already said there would be no nine-point penalty in those circumstances.

Nick Harris

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