Battle of the Bastards -- Kroenke v. Usmanov

August 7, 2018

As the 18/19 season draws nearer and the excitement and anticipation grows wilder, Arsenal fans woke up to some massive news today -- Alisher Usmanov has agreed to sell all his shares in Arsenal to majority shareholder Stan Kroenke.

Overview:

In a statement released in the early hours of today, KSE (a holding company worth in excess of $6 billion) announced that an agreement had been reached to buy 18,695 shares (~30.05%) owned by Usmanov previously. This will add to Kroenke's 41,743 shares (~67.09%) and bring his stake to ~97%. The remain ~3% rest with independent shareholders, and the Arsenal Supporter's Trust (AST) - a body of fan-shareholders that have held shares for generations, in some cases, and act as custodians for the club.

Arsenal have never been owned by a single owner. If reports are to be belived, KSE will buy out all independent and AST shares as well, and in an unprecedented manner become the first sole owner of Arsenal Football Club.

As per the release, each Arsenal share was purchased by KSE for £29,419.64, making Arsenal worth £1.8 billion. For reference, that puts us in 9th position as the most valuable club in the world, sliding down from 6th position earlier this year (Forbes). 

Commenting on the Offer, Mr  E. Stanley Kroenke said:

"We at KSE are moving forward with this Offer leading to 100% ownership of the Club. We appreciate Mr Usmanov's dedication to the Arsenal Football Club and the storied ethos and history the Club represents."

Ambition and Intent:

The statement cites that 18 out of the 20 Premiership clubs are privately-owned. "KSE believes moving to that model will bring the benefits of a single owner better able to move quickly in furtherance of the Club's strategy and ambitions. KSE is a committed, long-term owner of the Club", it notes.

It also adds, "KSE's ambitions for the Club are to see it competing consistently to win The Premier League and The Champions League, as well as the major trophies in the women's senior game and at youth level."

Financing:

This is where things start getting a bit more complicated. The statement cites "£45,398,000 cash from his own resources" and, perhaps more worryingly,  "a bridge facility agreement with Deutsche Bank AG, [...] to make available to Mr Kroenke a £557 million bridge term loan facility."

A bridge loan is a short-term, low-interest loan, undertaken when cash flow is unavailable. They are often resorted to when immediate financing is unavailable. Most importantly, they have a quick approval process and usually do not have repayment penalties. 

Contrary to what's being mentioned on social media, such a loan, typically, is what you want to have while executing such a transaction. UK code requires a cash confirmation statement made by a reputable financial institution and authorized by the Financial Conduct Authority,  when dealing in a public company. 

Opinion:

Now, I must begin by confessing that this opinion comes from a relatively amateur standpoint and is open to critique and discussion. Having said that, this piece has been proof-read and includes insight offered by an expert in corporate takeovers of this nature in the UK (@GiantGooner). 

Arsenal operate as a self-sufficient club. We take no money from our owners and consequently, do not give money to them either. A loan to finance such a purchase can be indicative of the club being leverage against this financial infusion, which will put even more pressure on our finances. It will also help remember at this point that our stadium loans go on till 2029/2031 (fixed bonds/floating rate bonds, respectively). What gives me some positivity here is that it would make no financial sense to pay the full sum out of pocket, even if such the cashflow was available - so a loan was obvious. A loan like such would help with tax breaks and provide a more 'enhanced' balance sheet that will help with other dealings as well. Additionally, the statement explicitly states that the club will NOT be leveraged against this loan -- if that is indeed the case that is a big win as well. Worryingly however, the switch can be flipped on this at the behest of Kroenke's discretion - so that would be something I pay close attention to in the future, BUT is not the case as of now.

In a lot of ways, the checks and balances that fans seem to be concerned about (while we had more than one owner) can also be seen as a negative. On many occasions we have encountered a stalemate between the two major shareholders and although Kroenke has had majority control, tensions have soared high between the two parties. Optimistically, a total share in the club, combined with the absence of other shareholders, might offer the owners more incentive and impetus to act. These could of course be radical and high-risk in nature, but whereas we never considered these in the past, now they could become a reality.

By far the biggest blow on this day has been for AST members and independent shareholders that constitute the ~3%. By my own admission, these are some of the most loyal and staunch Arsenal fans - placed in positions with responsibility to hold the board accountable and make sure Arsenal's workings have been transparent. Many of these fans/shareholders have served as custodians and the voice of all Arsenal fans worldwide. I feel for them deeply, as Arsenal is a massive part of their life, identity, and in some cases, a generational link for families. They hold these shares not for financial gain, but for a variety of emotional reasons. BUT, as we have observed in the past, some of these roles have been rendered powerless simply because of the composition of the ownership hierarchy. Many senior decision-makers have opted to ignore and remain passive when AST members have voiced their concerns seriously. In short, AST has been unsuccessful at mediating relations between the club and the fans for no fault of their own.

Personally, I believe in the importance of financial and sporting health of my club over anything else. I understand the weight of the 'emotional argument' but that is all it is. We must recognize that sometimes bold decisions need to be made to move things forward. Arsenal, at the end of the day, is a business, and it ought to be run like one. For too long we have seen our rivals strengthen and eclipse us in the pecking order. 

I remain cautious in judging these developments. Losing transparency** and AST's checks/balances is a minus, but not that big of a deal. Kroenke's increased stake shouts ambition and more detail towards the club, for me. Squeezing Arsenal and running it into the ground does him NO good. The backlash that has followed the announcement is not against full ownership from my observation, but against the unknown and uncertainty. I see this takeover as a long time in the making, maybe even as 'phase two' of the Emirates era. Looking around the league and considering our position, bold moves and new ideas are welcome in my book. And, this, if anything, is bold and new.

I will be the first one to criticize incompetence, but not the unknown/uncertainty. 

We play City this weekend as the season kicks off. Let's leave this for now and make the Emirates the cauldron we can. Its the start of a new era and we must not carry any old baggage with us. 

COYG!

- Schwinn (@AFCschwinn)

(Kindly excuse grammatical errors. Written while on the move. Please share feedback and factual critiques. Will appreciate that!)

**It also must be stressed that we will not lose financial transparency since Arsenal football club will have to continue to post financial results with Companies House.

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This piece has been edited since it was first published. Thank you to @GiantGooner for offering expert insight into such corporate takeovers. Image courtesy ITV News.