John Henry, principal owner of the Boston Red Sox, made his fortune buying and selling commodities — one of the most volatile plays in the investment universe. But with his surprise investment in Liverpool Football Club, the buttoned-down billionaire has entered a whole new realm of ups and downs.
John Henry, principal owner of the Boston Red Sox, made his fortune buying and selling commodities — one of the most volatile plays in the investment universe. But with his surprise investment in Liverpool Football Club, the buttoned-down billionaire has entered a whole new realm of ups and downs.
The board of England's most-successful soccer team — and one of its most indebted — announced yesterday that it had agreed to sell the club to Mr. Henry's New England Sports Ventures LLC, which owns the Red Sox and Fenway Park and holds sizable stakes in the New England Sports Network and Nascar outfit Roush Fenway Racing. The alternatives asset manager's sports firm reportedly will shell out 300 million pounds ($477 million) to acquire Liverpool FC.
That is, if the deal goes through. First, the purchase must be approved by the Premier League itself. While such approval is likely, it is hardly a given. Liverpool is one of the crown jewels of British football. A sign that hangs above the stairway leading onto the playing ground at the team's Anfield stadium (“This is Anfield”) is known around the world. The club is particularly popular in Asia, a region that Premier League officials see as a huge untapped market. A financially stable and competitive Liverpool is good for the English game, so it will be on Mr. Henry to show he'll put equity into the team. Moreover, in the wake of shaky leveraged buyouts and faltering finances at several marquee clubs — including the bankruptcy last year of top-flight team Portsmouth FC — the league will undoubtedly perform some unduly diligent due diligence in assessing Mr. Henry's bid. Too little cash and too much leverage could sour the deal.
Then, Mr. Henry must deal with a potential challenge from the current owners, Tom Hicks and George Gillett. Mr. Hicks — who founded the famed LBO firm Hicks, Muse, Tate & Furst in 1989 — and Mr. Gillett — until recently the owner of the NHL's Montreal Canadiens — have steadfastly refused to sell the club for less than what they see as a fair price. In a statement issued yesterday, the pair said Mr. Henry's offer “dramatically” undervalued the club and they will “resist any attempt” to sell without their agreement.
That stance puts the pair at odds with the other three members of the club's five-member board. That trio, which has been in a running battle with Hicks and Gillett for weeks, brokered the deal. In a statement, Liverpool FC chairman Martin Broughton, the former British Airways boss who was hired in April specifically to help sell the club, said: “The board decided to accept NESV's proposal on the basis that it best met the criteria we set out originally for a suitable new owner. NESV's philosophy is all about winning and they have fully demonstrated that at [the] Red Sox.”
Mr. Hicks has a similar philosophy, at least where his wallet is concerned. He and Mr. Gillett bought Liverpool in a leveraged buyout for 219 million pounds (including assumption of existing debt) in 2007, acing out a deep-pocketed rival, the Dubai Investment Corp. Since then, Liverpool's gearing has mounted, and is now up to 351 million pounds. The American duo face an Oct. 15 deadline to repay the 237-million-pound loan they received from the Royal Bank of Scotland Group LLP to fund the acquisition of the club. If they fail to pay, or are unable to convince RBS to refinance — which is not seen as likely — the bank will almost assuredly call in the loan.
According to Mr. Broughton, NESV's bid would pay off the original loan. It is not likely Mr. Hicks will go quietly, however. The onetime owner of the Texas Rangers stuck to his guns during the sale in August of the Major League baseball club, which was also saddled with huge debts. In the end, Mr. Hicks appeared to have outfoxed some of the team's lenders by cobbling together a prepackaged bankruptcy that ultimately left the Rangers under the ownership of a group led by Hall of Fame pitcher Nolan Ryan — and left the buyout specialist with a minority share in the club.
Mr. Hicks has already clashed with the three British board members of Liverpool. In September, the American reportedly tried to convince the private-equity giant Blackrock Inc. to front him the money to repay the RBS loan. That effort, which was opposed by the board, fizzled. And on Tuesday, Mr. Hicks and Mr. Gillett attempted to oust two of the three British board members of Liverpool LFC, according to a statement on the club's official web site. In that statement, Chairman Broughton said the board had rejected the proposal — but noted the decision was subject to legal challenge.
That, in turn, puts Mr. Henry's bid in some jeopardy. Mr. Broughton appears confident that the courts will approve the sale, which would leave Mr. Hicks and Mr. Gillett out in the cold. But it would most assuredly put the Red Sox' principal owner in the hot seat. U.K. football fans have grown increasingly alarmed by the American invasion of their sport. Fans of Manchester United have mounted several campaigns to force the club's U.S. owner, Malcolm Glazer, to sell the team. The main concern: more money is going into paying the club's debt than purchasing new players.
Mr. Henry will face similar concerns. After the tumultuous 3½ year rein of Mr. Hicks and Mr. Gillett, he will have to go a ways to win over Liverpool fans — fans who have launched a worldwide campaign to oust the current owners. NESV is going to have put considerable equity in the club: excessive borrowing will have the fans once again taking to the streets. And the American acquirer must convince the Red's faithful that he intends to invest in both players and a new stadium.
Anything less and Liverpool fans will see John Henry as little more than Hicks and Gillett, the sequel. And that scenario could get ugly fast. When it was announced on Tuesday that Mr. Hicks and Mr. Gillett had tried to oust the two British board members, irate fans around the world posted thousands of messages on the official Liverpool website. Some of those messages delved into the sinister. Wrote one: “Yanks go or we'll hunt you down.”
As the sign says, this is Anfield.
[John Goff is the online managing editor at InvestmentNews. The views expressed are his own.]
