Saturday, July 18, 2009

It's A Wrap

It's been another fascinating week in the life of Charlton Athletic. Here's a wrap-up:

House of Fraser

Just a day after I'd written, "...we don't have a recognised senior right-back..", the club confirmed the signing of Fraser Richardson. Coincidence? You decide.

It's taken a while to sink in that our free transfer signings will no longer be the likes of Paolo di Canio or John Barnes, but thankfully at least we now have Wikipedia.

He has (limited) Premiership experience, and at 26-years old he still has plenty of seasons left in him. And in a team dreadfully lacking leadership quality, he brings experience as a former captain of the division's 'biggest' club.

This no doubt however ends any hope that some of us hold, that we might again see Yassin Moutaouakil's potential fulfilled in a Charlton shirt.

The Frenchman hasn't even been mentioned on the club's website since 1st May, a ridiculous situation for a player still under contract, and who arrived for a not insubstantial fee only two years ago.

Who knows if rumours about his moody nature are true, but there's a genuine talent hiding there waiting to be prized out.

Indeed after I witnessed his first couple of appearances, I predicted he'd be snapped up by Arsene Wenger to join his French legion.

On a different note, happy 23rd birthday for Saturday, Yassin. Bet the club doesn't send you a card.

First Class Mail

The Mail on Sunday may be more right wing than Lloyd Sam, but its Charlton connections are impeccable thanks to the sports columnist and fellow Addick, Patrick Collins.

Thus if readers weren't already shocked enough by the paper's inevitable stories about limitless immigration, the shock news that Charlton were on the brink might have pushed them over the edge.

Whilst acknowledging the credentials above, two aspects of the story struck me as somewhat odd.

Firstly, the claim that the club has debts of £40million was not reflected in its most recent accounts. At 30 Jun 2008, the auditors signed off on the opinion that the club had total long-term debts of £21million, of which £15million was owed to those Directors that participated in the bond issue.

Since the date of the accounts, the club sold Madjid Bougherra (£2.5m), Marcus Bent (£1m), and Mark Hudson (£1.1m). It also sold the training ground and other property, back to the Directors.

The only players bought for cash have been Nicky Bailey (up to £750k) and Matthew Spring (undisclosed). Thus it is hard to see how the debts could have nearly doubled in the space of a year.

Second, I find the idea that a consortium of 'local businessmen' was willing to invest £30m to buy the club to be a little far-fetched.

Given the state of the economy, and the inherent dire fundamentals of running a football club, how many 'local businessmen' are likely feeling flush enough to pour capital into such an enterprise?

Moreover, surely any wealthy 'local businessmen' (and perhaps fans too) with an interest in financing the club would already have come forward, during the good times? After all, the financing hurdle to win a place on the Board in the past, had not been set particularly high.

Unless of course it's a particularly large consortium, but I don't think even Peter Varney's that popular.

It may have been pricier to have got involved in say 2001, but the prospects were brighter too.

Bid and Offer

Finally the club has spoken: "Over a period of months, there have been approaches from interested parties. One such approach, an offer for the football club (through an acquisition of some of the assets and liabilities of Charlton Athletic plc), is being progressed, and the board will make a formal announcement at the appropriate time."

After weeks on tenterhooks, the club's eventual statement to 'supporters and shareholders' was decidedly vague, and indeed even cryptic.

Trying to read between the lines here, has brought back uncomfortable memories of my accountancy exams. That's not a place I want to return to, but I'll do my best to interpret it.

As the latest accounts show, whilst we tend to talk generically about 'the club', there is infact a 'Group' comprising a holding company ('the Plc'), and two subsidiaries ('the football club' and a 'property holding company').

The accounts of the subsidiaries must presumably be available at Companies House, but they are not openly disclosed.

The assets of 'the Plc' (Charlton Athletic Plc) at 30 Jun 2008 were limited to the investments in the two subsidiaries, some cash and a large (£45m) receivable from its subsidiaries.

The main assets of the (consolidated) Group consisted of freehold land and buildings (presumably mainly The Valley). It is not clear whether these are held by 'the football club' (Charlton Athletic Football Club Ltd), or 'the property holding company' (Charlton Athletic Holdings Ltd), but they are not held by 'the Plc'.

I don't recall why the club was set up in this way, except perhaps to avoid a repeat of 1984's near liquidation of the club, by making the subsidiaries 'bankruptcy remote' from the holding company.

The £15million in debts owed to the Directors via the bond issue however, are owed by 'the Plc', not the subsidiaries. All of the other long-term debts however are held at the level of the subsidiaries.

I'm too tired to think about this properly, but I guess the wording of today's statement implies to me that the Directors are potentially willing to write off both the value of their equity (in 'the Plc') and their debts (at 'the Plc' level).

The £45m intercompany debt will be cancelled too I guess, although this is just an accounting entry effectively.

They obviously cannot force the other creditors (mainly bank loans of £6m) to write off their debts too, so these will be taken on (or repaid) by any buyer at the subsidiary level.

The interested purchaser may thus be intending to purchase the two subsidiaries from 'the Plc', rather than buy 'the Plc' itself (including its subsidiaries).

If completed, 'the Plc' will cease to have any material assets or liabilities, and will presumably be liquidated.

I'm not smart enough to work out why exactly it would be structured like this, except to assume that there may a) be tax benefits to those involved, or b) it may ensure there are no retrospective legal rights accruing to either party.

It remains to be seen whether any deal is consummated, or who the potential buyers are.

However whilst the write-off of any equity value is probably just simple financial realism, this is less true of any debts owed which must have some substantial recovery value, including via a liquidation (perish the thought).

Thus it would be an incredibly generous gesture (indeed gift) by the Directors to the club (and indirectly its fans), if they were contemplating this route.

Indeed, I'm sure the reason why the Directors structured the March 2008 fundraising as a bond rather than an equity injection, was precisely to protect their own personal interest and ensure they ultimately got repaid.

If my thesis is correct, it'll be the Directors who deserve a lap of honour at The Valley, not the players.


At 9:21 AM, Anonymous Chris said...

You've made a much better fist of figuring out what the Club's rather cryptic statement might mean than I would have done and my guess is that you are in the right ball park. Your hypothesis might also help to explain the confusion over the level of debt and even the initial surprise of the potential buyer, whilst confirming that the underlying economics are as we had understood them to be.

The Directors are being generous on one level, but in reality the Club has no real value and, moreover, will likely continue to bleed cash if its existing fabric and status is to be retained. My guess is that they have no real choice though it is clear that reaching that conclusion and then deciding to act upon it must have been a very painful process. No wonder it has taken some time.

Anyhow, let's hope this now goes through.

At 1:56 PM, Anonymous Sciurus Carolinensis Nemesis said...

NYA I reckon your hypothesis and analysis thereof is pretty good. It certainly makes plenty of sense. The truth and detail may never, and indeed never need to, come to light. Yours is a lone chink of light in the dark stream of inane drivel committed to blog and newsprint since May. I hope many of those responsible for said drivel get to read your version, sadly I doubt many of them have the nouse required to appreciate it nor the absence of ego not to take offense that they weren't personally consulted before "their" club changed hands. Let's hope the improvement in the immediate financial health of the companies can foster some entertainment on the pitch!

At 9:43 PM, Anonymous Anonymous said...

Thanks for that analysis NYA.

So what was the objective of leaking the statement in the Sunday Mail?

Its been said that it was in response to the Richard Murray piece the previous week. If it was meant to effect public opinion, most of us don't "get it" enough to read the message. Or was it preparing us for a 10 point deduction?

Pembury Addick


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