A Subtext to the Freehold Deal

Brent is the majority shareholder, by a long way. Whatever happens will be his choice, although it will be packaged as a 'board' decision.

Brent is the majority shareholder so whatever happens, it certainly won't be something he's opposed to. However, it doesn't necessarily mean that JB can just do whatever he wants, if the other directors and shareholders don't agree with it.

It's not necessarily a 'majority rule' scenario - there will be a level of consensus at which a decision will become binding. If JB holds 66% of the voting shares, that level surely must be >66%. If not, I can see no reason for Hallett handing over his cash - he'd be impotent.

Rickler wrote:

Our Guile wrote:

Afraid I don't have first hand knowledge of the inner workings of the PAFC boardroom. Through my job I have regular exposure to commercial finance deals,  corporate mergers and acquisitions, etc. So I have a reasonable understanding of how it works, although, of course, it's difficult to generalise because no two deals are the same.

Somewhere in the PAFC shareholder agreement it will set out exactly how many shares one party needs to 'trump' the rest. A majority shareholding doesn't necessarily mean that person has carte blanche over all decision making. It means they probably retain a right to veto any decisions they don't agree with, but they can't necessarily just impose / implement their own ideas without the backing of the (at least some of the) other shareholders.

I can't imagine for one minute someone like Hallett would get involved if JB could just steamroller him every time they didn't agree on an important decision.

I think you are wrong in this particular case - I can't imagine Brent being beholden to anyone regarding his 'Argyle train set'.

Who in their right mind has complete control and then gives it up when there is no need to do so?

He never had 'complete' control - although I take your point, the other shareholders, pre-Hallett and the other chap, only had very small shareholdings, so JB did effectively have full control.

Maybe there was a need to relinquish some control... perhaps it was money - Hallett put in a chunk of cash, and is probably in-line to do so again if the freehold is purchased. Perhaps JB wanted someone to take some of the work away from him - PAFC must represent a big time-commitment for JB. Has Hallett picked up any of that? Maybe JB recognised that it wasn't healthy or in the best interests of the club for it to be wholly owned by one person - good corporate governance, and all that (that is tongue in cheek, btw - I know no-one on here is likely to take that suggestion seriously - but imo it's as likely as any other reason for bringing someone like Hallett in to a business)

Hallett is no mug - he is a serious and vastly experienced individual when it comes to this sort of thing. Perhaps even more so than JB (albeit in a slightly different way). Pretty sure he won't have left himself beholden to anyone either.

Maybe - and this is slightly left-field - but maybe there will be a re balancing of the equity when the new shares are issued to fund the freehold purchase. The club's statement said the new shares would only be issued to existing shareholders - but it didn't say the existing equity ratios would be preserved. So could we see Simon Hallett taking a larger share of the equity by stumping up more / most of the cash for the freehold purchase?

Or, alternatively, you may be right Rickler. Maybe Hallett is a true fan who just had some spare cash and wanted to get involved, but doesn't really want any of the responsibility. I genuinely don't know!

Our Guile wrote:

It's not necessarily a 'majority rule' scenario - there will be a level of consensus at which a decision will become binding. If JB holds 66% of the voting shares, that level surely must be >66%. If not, I can see no reason for Hallett handing over his cash - he'd be impotent.

Funny you use those figures...

Sir Francis Drake wrote:

They've issued new shares which gives the new boys 29% of the new total.

This means Wrathall's share is down to around 5% and Brents is down to about 66%.

If the 29% was valued at £500k (has this been confirmed?) then the club is valued at about £1.75m.

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Impotent he is then..?

I was aware of the figures,which is why I used them :-)

My assumption is that the holders of more than 66% of the shares would need to agree for any important decision to become binding. I don't know if that's correct. But if it isn't, Hallett would be effectively powerless (impotent). And I doubt he'd spend £500k to end up in that situation. But it's all supposition and conjecture. I don't know how it's actually structured.

Akkeron held 1125001 shares.
Wrathall held 86533 shares.

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A further 500000 were issued when Hallet joined the board.

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Leaving us with these percentages:

Akkeron 65.7% (was 92.9%)
Wrathall 5.1% (was 7.1%)
Hallet 29.2%

I can do a pie chart if that helps.

Thanks for the clarification SFD. I wasn't particularly clear... I knew (roughly) the equity split, but I don't know how the voting rights are structured in the shareholder agreement. So I don't know if JB has ultimate control with his 66%, or if he needs to get someone else on-side (and that could only be Hallett if the threshold was above 72%) to make binding decisions.

Our Guile wrote:

nzgreen wrote:

Answer [You must be registered and logged in to see this link.] was interesting..."If PAFC buys the freehold, no rent will be payable to JB, or indeed to anyone".
What about mortgage repayments?...if the new share issue to raise the money is irredeemable, does this mean the board are buying the freehold outright and mortgage free and giving it to the club for nothing?

Really?

The board would not be buying the freehold. The existing shareholders (I am not clear if that's the same as 'the board' - are there existing shareholders who are not on the PAFC board? Tony Wrathall, maybe?) would be buying newly issued shares in PAFC, to the tune of £1.7m. PAFC would then use that £1.7m to buy the freehold outright.

It would be a further investment in the club by the existing shareholders. And it would be an attractive investment as well, because (I assume) the extra £1.7m they put in will be (probably significantly) less than the consequent increase in value of the club once it owns the freehold. The asset itself is worth more than £1.7m, so the value of the club would increase by at least that much.

So, if/when the shareholders sell their shares at some point in the future, all of their shares (not just the new ones they buy to raise the £1.7m) will be worth more than they are now. Effectively they are investing in something which will almost immediately increase in value (the undervalued / attractively priced freehold), plus by doing so, it will increase the value of their currently held (pre freehold purchase) shares as well.

And the club effectively gets a free ground. So, assuming all the existing shareholders are happy to chip in the required amount, and they can afford to do so, it seems like a win-win.

Unless I am missing something??

Ok thanks for that insight.
The 'irredeemable' nature of the new shares suggests future sale of this portion of shares is prohibited. Which also sounds like a good measure from Pafc perspective.

Interesting too, that the valuation mentioned above was approx £1.7m. That's the same amount required for the freehold purchase. So, conceivably, they could issue 100% more shares to fund the purchase, if they're issued at the same value as when Hallett bought-in. And, depending on, who buys what proportion of the new shares, that could lead to more or less any conceivable rebalancing of the equity split.

Didnt Simon Hallett say something about having effectively committed more than just his equity holding into the club? Could have sworn he said something like £800k in total which was all a bit unreconcilable at the time. But if the club made £800k "surplus" last year, is it inconceivable that that £800k is repayable to Jimmy B as part of the "loans" he has made to date but he is leaving it in the club to facilitate a freehold purchase along with the "£800k in total" that Hallett has committed. There is obviously around £1.6m sloshing around in the coffers potentially, just about enough to buy the freehold with a top up from Wrathall.

The Big Question is how much might the re-valuation come in at?

It's great that the club saves rent of a minimum of £140,000 p.a. and every little helps and all that but if the new value doubles overnight that'll deliver, on paper, more than 10 years of rent instantly to the club's owners.

And over the years in all likelihood the value of the freehold will grow further.

It helps the club a little but it helps the club's owners a lot.

nzgreen wrote:

Our Guile wrote:

nzgreen wrote:

Answer [You must be registered and logged in to see this link.] was interesting..."If PAFC buys the freehold, no rent will be payable to JB, or indeed to anyone".
What about mortgage repayments?...if the new share issue to raise the money is irredeemable, does this mean the board are buying the freehold outright and mortgage free and giving it to the club for nothing?

Really?

The board would not be buying the freehold. The existing shareholders (I am not clear if that's the same as 'the board' - are there existing shareholders who are not on the PAFC board? Tony Wrathall, maybe?) would be buying newly issued shares in PAFC, to the tune of £1.7m. PAFC would then use that £1.7m to buy the freehold outright.

It would be a further investment in the club by the existing shareholders. And it would be an attractive investment as well, because (I assume) the extra £1.7m they put in will be (probably significantly) less than the consequent increase in value of the club once it owns the freehold. The asset itself is worth more than £1.7m, so the value of the club would increase by at least that much.

So, if/when the shareholders sell their shares at some point in the future, all of their shares (not just the new ones they buy to raise the £1.7m) will be worth more than they are now. Effectively they are investing in something which will almost immediately increase in value (the undervalued / attractively priced freehold), plus by doing so, it will increase the value of their currently held (pre freehold purchase) shares as well.

And the club effectively gets a free ground. So, assuming all the existing shareholders are happy to chip in the required amount, and they can afford to do so, it seems like a win-win.

Unless I am missing something??

Ok thanks for that insight.
The 'irredeemable' nature of the new shares suggests future sale of this portion of shares is prohibited. Which also sounds like a good measure from Pafc perspective.

The irredeemable nature of the shares means the company (club) can't buy them back. Effectively, they are a permanent purchase made by the buyer, not a loan that the company pays back. There's nothing, as far as I know, that precludes them being sold on to someone else in the future, just like the other shares in the company.

Sir Francis Drake wrote:

The Big Question is how much might the re-valuation come in at?

It's great that the club saves rent of a minimum of £140,000 p.a. and every little helps and all that but if the new value doubles overnight that'll deliver, on paper, more than 10 years of rent instantly to the club's owners.

And over the years in all likelihood the value of the freehold will grow further.

It helps the club a little but it helps the club's owners a lot.

That's precisely what I meant when I said it was a win-win.
Not sure what your point is... the only way the owners could liquidate the paper gain would be to sell the club. And the only way the club could benefit further from the purchase would be to immediately mortgage the ground for its full market value. That would release the paper surplus associated with the club's asset (the ground) back to the club, while the owners' asset (the club) would assume the mortgage debt. Surely you're not advocating that!? ;-)

Our Guile wrote:

nzgreen wrote:

Our Guile wrote:

nzgreen wrote:

Answer [You must be registered and logged in to see this link.] was interesting..."If PAFC buys the freehold, no rent will be payable to JB, or indeed to anyone".
What about mortgage repayments?...if the new share issue to raise the money is irredeemable, does this mean the board are buying the freehold outright and mortgage free and giving it to the club for nothing?

Really?

The board would not be buying the freehold. The existing shareholders (I am not clear if that's the same as 'the board' - are there existing shareholders who are not on the PAFC board? Tony Wrathall, maybe?) would be buying newly issued shares in PAFC, to the tune of £1.7m. PAFC would then use that £1.7m to buy the freehold outright.

It would be a further investment in the club by the existing shareholders. And it would be an attractive investment as well, because (I assume) the extra £1.7m they put in will be (probably significantly) less than the consequent increase in value of the club once it owns the freehold. The asset itself is worth more than £1.7m, so the value of the club would increase by at least that much.

So, if/when the shareholders sell their shares at some point in the future, all of their shares (not just the new ones they buy to raise the £1.7m) will be worth more than they are now. Effectively they are investing in something which will almost immediately increase in value (the undervalued / attractively priced freehold), plus by doing so, it will increase the value of their currently held (pre freehold purchase) shares as well.

And the club effectively gets a free ground. So, assuming all the existing shareholders are happy to chip in the required amount, and they can afford to do so, it seems like a win-win.

Unless I am missing something??

Ok thanks for that insight.
The 'irredeemable' nature of the new shares suggests future sale of this portion of shares is prohibited. Which also sounds like a good measure from Pafc perspective.

The irredeemable nature of the shares means the company (club) can't buy them back. Effectively, they are a permanent purchase made by the buyer, not a loan that the company pays back. There's nothing, as far as I know, that precludes them being sold on to someone else in the future, just like the other shares in the company.

Ah. Of course.
So the owners (shareholders) are on to a real winner here. Whether the club wins too is down to the owners future plans for the club.

I'm just wondering where this goes ultimately...

Say the re-valuation comes in considerably higher than the double I guessed. It wasn't that long ago the same buildings were valued at £7.5m after all. So there could be a £6m profit.

It seems fairly obvious to me that that sort of potential will attract ideas for opportunity realisation which means borrowing against it in some shape or form (assuming that sale of the club is not on the table - and if it is then the price has just shot up).

Might £6m be enough to build a grandstand?

And if it isn't is it a good enough start for the directors to stump up a little more to meet the shortfall?

Our Guile wrote:

Sir Francis Drake wrote:

The Big Question is how much might the re-valuation come in at?

It's great that the club saves rent of a minimum of £140,000 p.a. and every little helps and all that but if the new value doubles overnight that'll deliver, on paper, more than 10 years of rent instantly to the club's owners.

And over the years in all likelihood the value of the freehold will grow further.

It helps the club a little but it helps the club's owners a lot.

That's precisely what I meant when I said it was a win-win.
Not sure what your point is... the only way the owners could liquidate the paper gain would be to sell the club. And the only way the club could benefit further from the purchase would be to immediately mortgage the ground for its full market value. That would release the paper surplus associated with the club's asset (the ground) back to the club, while the owners' asset (the club) would assume the mortgage debt. Surely you're not advocating that!? ;-)

Nonsense! The owners could borrow personally or corporately against the increased value in an asset they held. If the ground was revalued at £10m and Brent owned 66% he could borrow £6m against his asset. This is precisely what happened before when revaluations took place and outside investors were bought in at those inflated valuations.

Chancellor wrote:

Our Guile wrote:

Sir Francis Drake wrote:

The Big Question is how much might the re-valuation come in at?

It's great that the club saves rent of a minimum of £140,000 p.a. and every little helps and all that but if the new value doubles overnight that'll deliver, on paper, more than 10 years of rent instantly to the club's owners.

And over the years in all likelihood the value of the freehold will grow further.

It helps the club a little but it helps the club's owners a lot.

That's precisely what I meant when I said it was a win-win.
Not sure what your point is... the only way the owners could liquidate the paper gain would be to sell the club. And the only way the club could benefit further from the purchase would be to immediately mortgage the ground for its full market value. That would release the paper surplus associated with the club's asset (the ground) back to the club, while the owners' asset (the club) would assume the mortgage debt. Surely you're not advocating that!? ;-)

Nonsense! The owners could borrow personally or corporately against the increased value in an asset they held. If the ground was revalued at £10m and Brent owned 66% he could borrow £6m against his asset. This is precisely what happened before when revaluations took place and outside investors were bought in at those inflated valuations.

Sorry - my last comment was a little flippant.

You're right, of course. JB could borrow personally against his asset; 66% of the value of PAFC. But borrowing against shares is very inefficient and you'd be hard pushed to find a lender who would give you anywhere close to £6m in the scenario you describe above. The asset would be valued at £6m, and you might get a loan for half that amount, with pretty unattractive interest rate.  

I would assume people like JB and SH would have access to much more efficient means of borrowing money, such as loans against tangible assets they actually own outright (property, etc).

In the scenario above, the lender couldn't place a charge on any tangible asset (the ground, for example) because the borrower doesn't wholly own it. The other owners would have to consent to that. If the borrower defaulted on the loan, the lender would assume ownership of the shares in the company, not directly the company's assets.

Its a different story if all the shareholders act as one to leverage their (wholly owned) asset - or form a new company to do just that - which I believe is what happened last time. They must have all agreed to have charges placed on the ground in order to securitise the various loans.

Our Guile wrote:

Chancellor wrote:

Our Guile wrote:

Sir Francis Drake wrote:

The Big Question is how much might the re-valuation come in at?

It's great that the club saves rent of a minimum of £140,000 p.a. and every little helps and all that but if the new value doubles overnight that'll deliver, on paper, more than 10 years of rent instantly to the club's owners.

And over the years in all likelihood the value of the freehold will grow further.

It helps the club a little but it helps the club's owners a lot.

That's precisely what I meant when I said it was a win-win.
Not sure what your point is... the only way the owners could liquidate the paper gain would be to sell the club. And the only way the club could benefit further from the purchase would be to immediately mortgage the ground for its full market value. That would release the paper surplus associated with the club's asset (the ground) back to the club, while the owners' asset (the club) would assume the mortgage debt. Surely you're not advocating that!? ;-)

Nonsense! The owners could borrow personally or corporately against the increased value in an asset they held. If the ground was revalued at £10m and Brent owned 66% he could borrow £6m against his asset. This is precisely what happened before when revaluations took place and outside investors were bought in at those inflated valuations.

Sorry - my last comment was a little flippant.

You're right, of course. JB could borrow personally against his asset; 66% of the value of PAFC. But borrowing against shares is very inefficient and you'd be hard pushed to find a lender who would give you anywhere close to £6m in the scenario you describe above. The asset would be valued at £6m, and you might get a loan for half that amount, with pretty unattractive interest rate.  

I would assume people like JB and SH would have access to much more efficient means of borrowing money, such as loans against tangible assets they actually own outright (property, etc).

In the scenario above, the lender couldn't place a charge on any tangible asset (the ground, for example) because the borrower doesn't wholly own it. The other owners would have to consent to that. If the borrower defaulted on the loan, the lender would assume ownership of the shares in the company, not directly the company's assets.

Its a different story if all the shareholders act as one to leverage their (wholly owned) asset - or form a new company to do just that - which I believe is what happened last time. They must have all agreed to have charges placed on the ground in order to securitise the various loans.

There are many things I am inexpert about and the recent doings at Coventry City/Ricoh Arena are definitely one of them but isn't that pretty much how hedge fund SISU came to own Coventry City?

Sir Francis Drake wrote:

There are many things I am inexpert about and the recent doings at Coventry City/Ricoh Arena are definitely one of them but isn't that pretty much how hedge fund SISU came to own Coventry City?

I am not that familiar with it, but I thought SISU simply bought a majority shareholding in Coventry City. I wasn't aware that was in any way related to a debt owed by the former majority shareholder to SISU, secured against his shares.

Our Guile - I like the cut of your jib. Some thoughtful reasoning about what will happen, which is what is required now. The freehold purchase is inevitable and the important thing is to get our heads around what that actually means in terms of future activity.

Welcome back Inny.

Les Miserable wrote:

Welcome back Inny.

Thanks mate

Les Miserable wrote:

Welcome back Inny.

Indeed. Great thighs.

Czarcasm wrote:

Les Miserable wrote:

Welcome back Inny.

Indeed. Great thighs.

♬Who likes short-shorts? Ba ba-da ba-da ba-ba!♫

I still would not like to see a Brent led PAFC not to buy the freehold.