Tuesday, 11 November 2014

Ricoh - The Final 50%

It has been reported today that the Alan Edward Higgs Charity (AEHC) will decide this week on the two bids they have received from Wasps RFC and CCFC (SISU) in relation to the 50% shareholding they currently hold in Arena Coventry Limited (ACL) and whether to accept or reject one or both bids. This may or may not be true, however one would assume all the necessary requirements would be in place and easily available in order to make this decision. The Wasps RFC bid is unconditional whilst the SISU bid is conditional reportedly based on information relating to the ongoing Judicial Review.

Should Wasps RFC secure the 50% they would have a 100% shareholding in ACL. If SISU are successful then they and Wasps RFC would hold 50% each. One can present a case of which would be the better outcome and often this would be based on which club you support, however from a purely business, commercial assessment a joint holding of 50% each would appear to be the stronger option in terms of increased revenue and profit in the medium to long term for ACL. This is based on the fact that should SISU fail with their conditional bid it is hard to see a future for CCFC as purely tenants, hence the crowd size and income this generates for ACL would be significantly reduced. Two factors would change this. One Wasps RFC develop an average gate size of around 15k and significantly improve the performance of ACL. Two SISU sell up CCFC to a new ownership and they can turn the club around progressing up the league and more significantly restore the average attendance to around 15 to 20k.

Now whilst all this is of some interest it is mostly irrelevant to AEHC and how they will make their decision. It will be the board of AEHC who will make the decision as to what to do with their 50% shareholding in ACL, despite the other shareholder, Wasps RFC, having the ability to block or accept any deal. Only the AEHC board can give approval to any offer. Any decision the AEHC board make will be based on commercial criteria in the best the best interests of the Children's  Charity. They have 3 options - 

1) Accept the SISU offer, which if Wasps RFC blocked  - then move to 2) or 3).
2) Reject the SISU offer and accept the Wasps RFC offer
3) Reject both offers

Whilst we do not know the details of any of the bids, the SISU offer is conditional and may well not be acceptable commercially on the basis as it could lead to further court action and incur further costs. In any event Wasps RFC could block this deal. Accepting the Wasps RFC unconditional offer would be a straight forward option, supposing both offers from SISU and Wasps RFC are roughly similar. However the AEHC must act in the best interests of the Charity, nothing else. Whilst the Coventry City Council (CCC) deal with Wasps RFC had a strong degree of political influence about it, this decision will be commercially centred. Now option 3) for the AEHC board would on the face of it present the best commercial gain, that is without knowing the full details of the bids to date.

Already with the Wasps RFC and CCC deal done the value, revenues, profits of ACL has already increased, simply by increasing the usage and profile of the Stadium. The AEHC 50% shareholding is now worth significantly more than 30 days ago. So both offers submitted should reflect this, if not they may well be rejected. The lawyers and accountants will be viewing the business plan projected figures submitted by Wasps, unless the offers submitted reflect the projected improved performance in ACL with Wasps RFC now in place, the AEHC board will be duty bound to reject both offers and stay, in the best interests of the Charity, as joint owners of ACL. They are not duty bound to sell. It will be the lawyers and accountants who prepare and present the criteria on each of the options, it will not be based on sentiment, polical pressure or preference. It will be based on the financial facts relating to the long term interests of the Charity. Simply the amount Wasps RFC paid CCC for their 50% shareholding will have increased in value, hence the bids on the table should be more, otherwise the AEHC board would not be fulfilling their duty the the Charity.

Having said all this, the most likely chain of events which has brought us to this point is that initially Wasps RFC approached the Council and most likely AEHC at the same time, showed an interest and negotiated an offer to buy both shareholdings of ACL. It was only when a covenant was discovered requiring first option sale must go to CCFC that things changed. However the initial figures scrutinised by the AEHC board have now significantly changed due to the deals not being completed simultaneously.

My preference is for Wasps RFC and CCFC (SISU) to share the spoils and get on and make it work. It is after all a sports stadium and with two clubs progressing and successful that can only be good for everyone. We shall see how it all unfolds, hopefully this week.

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