Colin Kreidewolf, secretary of Ipswich Town Ist, examines the financial side of Marcus Evans's takeover now that more information has become available to shareholders.
The club has now published full details of the planned takeover of Ipswich Town by Marcus Evans which shareholders will formally ratify at this Monday's Extraordinary General Meeting.
The Trust remains broadly supportive of the deal, partly because of the desperate financial position that the club finds itself in. In the recently published annual report and accounts for 2007, the club was only able to avoid a £2.5m operating loss by the including the bonus payment due after the transfer of Darren Bent from Charlton to Spurs.
If this takeover had not been proposed there is nothing to suggest that the financial position would not have deteriorated further. We are already seeing crowds falling with a consequent effect on revenue. One could see that we would continue to be a selling club and maybe one or two of our brighter prospects would have to be sold to balance the books.
The £32m of debt remains problematical for many Town supporters as Marcus Evans has been able to purchase this for 20p in the pound meaning that he has paid less than £7m for the outstanding debt payable to Norwich Union and Barclays.
However, that debt is not to be absolved from the books of Ipswich Town and the full £32m remains payable to a Marcus Evans Group company. In addition, the Trust understands that the debt will continue to accrue interest, so the debt will increase.
Remember the club has had an interest-free holiday for the last couple of years during which time no interest has accrued, although a certain amount of equity in the club has been issued to Norwich Union in exchange.
The essential terms of the deal are that Marcus Evans will invest £3.9m in ordinary shares so that enough ordinary shares can be issued to ensure he achieves an 87.5% shareholding in the club. He has not sought to buy out what will be come the minority shareholders in the club but if further financing is required and additional ordinary shares are issued in exchange, then he will be able to increase his stake further should other ordinary shareholders not wish to increase their investment.
It is interesting to note that in the documents accompanying the takeover the club talks of the existing ordinary shares as being basically worthless. This is little more than two years after they put a value of £20 a share when they made the most recent share offer. Little has changed in terms of the overall size of the debt to change the valuation, so why did the directors feel comfortable with valuing shares at £20 at that time?
Of course, no one would have bought their shares as an investment, more as a donation to their club and it is important to recognise the contribution of people such as Holly Bellingham, Michael Spencer and Peter Cohen in making the ‘donations' in order to safeguard the interests of Ipswich Town, as well as the 3,000 smaller shareholders who also contributed.
A further £8.1m will be invested in preference shares which will accrue 7% interest annually. These shares will be repayable at some time in the future should we achieve promotion to the Premier League and remain there for a period of time.
Should the club achieve promotion to the Premier League, then the proposed takeover could prove very lucrative for Marcus Evans as he will be able to receive repayment for the preference shares and the outstanding debt plus accrued interest. However, is that a bad thing?
He is taking a risk as there is no certainty that the club will achieve promotion over the next few years, let alone this season, and we live in a culture where risk-taking should be rewarded. Plus the club is in a dire financial position and desperately needs to refinance its balance sheet.
However, were there other options on the table and did the club rush into an exclusivity agreement with Marcus Evans at the expense of listening to other offers?
The Trust understands that there were other parties, including David Sullivan (although any move on his part would have been prevented or at least delayed by his involvement in Birmingham City), a local consortium and another City-based investment group, who were interested in paying off the debt and investing a similar amount of new money for a lower percentage ownership. However, the chairman was not prepared to talk to them because the club had already entered into an exclusivity agreement with Marcus Evans.
The Trust has written to Marcus Evans seeking certain assurances about his long term intentions as regards the club and are awaiting a reply.
Once all is said and done though, the Trust remains broadly supportive of the deal and welcomes the new investment in the club.
The Ipswich Town Ist website can be found here.