Deal insider: Everton FC
The takeover of Everton FC by a consortium headed by Bill Kenwright was a new twist in the world of Premiership football. Ian Binnie led the winning legal team
The recent unhappy history of Everton Football Club is well known to fans and other football supporters. The unpopular ex-chairman and 68% shareholder, Peter Johnson, was already in hot water with Everton fans and the FA because his majority shareholding in Tranmere Rovers was a breach of FA rules. He did little to endear himself in 1999 when he sold Everton’s star player, Duncan Ferguson, to Newcastle United without consulting manager Walter Smith.Theatre impresario and former Coronation Street actor Bill Kenwright is a lifelong Evertonian with a dream of assuming control of the club. A director of Everton since 1988, his first bid to control Goodison Park was thwarted by Johnson four years ago. However, at the end of 1998, Johnson announced his intention to sell his stake in the club and Kenwright set about putting together a consortium to mount a bid. Twelve months later, a price was agreed for Johnson’s shares, at which point we were asked to advise the consortium.Everton FC is a private limited company. In 1996 the club had made a rights issue and, because there were more than 900 shareholders, a prospectus complying with The Public Offers of Securities Regulations 1995 was issued. This meant the City Code on Takeovers and Mergers, which generally only applies to public company takeovers, had to be followed. Although Kenwright only wished to acquire Johnson’s stake and was keen for all fans to retain their shares in the club, this acquisition (of more than 29.99% of the Everton shares) would oblige him to make a general offer to all shareholders.In the days leading up to Christmas 1999, negotiations were conducted with the trustees of Johnson’s family settlement to agree the terms of an irrevocable undertaking to accept a general offer. This was eventually signed on Christmas Eve, on the terms that it would lapse if Kenwright did not make an announcement of a firm intention to make an offer by 25 January, 2000.After Christmas, teams from the London office of McGrigor Donald and the Manchester office of Grant Thornton (the financial advisers to the consortium) descended upon Goodison Park to conduct the legal and financial diligence. It was vital to verify the club’s financial position. Players’ contracts, together with sponsorship arrangements, formed vital pieces of the jigsaw, and reviews of the fitness of players added an unusual angle to the diligence exercise.While investigations were being carried out at Goodison Park, the process of formalising the identity of, and relationship between, the members of the bidding consortium was finalised. Fellow director Arthur Abercromby and friends Paul and Anita Gregg, and Jon Woods completed the team sheet. While it was hoped that fans would reject the offer, the City Code requires that a bidder has committed cash resources available to fund acceptance by all shareholders, so funds of more than £30m would have to be put in place.True Blue Holdings Limited was established as the bid vehicle. It was then capitalised; the results of the due diligence exercise were compiled and considered; discussions were concluded with the club’s bankers regarding its existing facilities and on 25 January, 2000, a press announcement was made of the firm intention to make the general offer.Being ‘reluctant’ bidders, the consortium did not consider it necessary for the offer to be recommended by the Everton board. As Kenwright was an existing director of Everton and wanted his fellow directors (other than Johnson) to remain on the Everton board, the Takeover Panel had taken the view that the offer be treated as a management buy-out. Consequently, the only ‘independent director’ was Johnson himself. Arthur Andersen Corporate Finance, which was retained as Rule 3 adviser to Everton, found itself in the unusual position of advising an independent board consisting of one director, being the only person to have given an irrevocable undertaking to accept the offer. The other members of the Everton board (as well as the members of the bidding consortium) had undertaken not to accept the offer in respect of any of the shares that they already held. The City Code requires, among other things, that a strict timetable be adopted for the making of an offer. Having the benefit of an irrevocable undertaking to accept the offer in respect of approximately 68% of the shares, the acceptance condition was set at 65%, thus ensuring that this condition would be satisfied as soon as Johnson accepted. True Blue was keen to avoid the offer remaining open for longer than was necessary. Although the ‘first closing date’ was the period of 21 days after the offer document was posted, the City Code required that, even if the offer was declared unconditional in all respects prior to the first closing date, shareholders were given a minimum of 14 extra days after the first closing date before the offer could be closed. The offer document made it clear that True Blue intended to declare the offer unconditional as soon as Johnson had accepted and that there would be no extension to the offer period beyond the minimum allowed by the City Code. Following receipt of Johnson’s acceptances, the offer was declared unconditional in all respects on 1 March, 2000, when Jon Woods and Paul Gregg joined the Everton board and Johnson resigned.Kenwright has fulfilled his dream, but the work at Goodison Park has only just begun. A multi-million pound football business demands substantial investments. A number of Premiership clubs have recently accepted substantial investments by large media groups for minority stakes. A new chapter in the story of Everton Football Club will unfold in due course.At the time of writing Everton has made a £3m signing of England under-21 international Stephen Hughes from Arsenal, has received a request to enter into the InterToto Cup and agreed a two-year extension to defender Richard Gough’s contract. Everton are currently lying tenth in the Premiership and, although their FA Cup run has come to an end, the future of one of England’s best-known clubs looks far rosier than it had for some time.
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