Could Usmanov Win The Takeover Battle?

With a majority of the first-team squad either in the treatment room or away on international duty this week I thought I’d blog again on ownership. I know many Gooners don’t give a stuff who owns the club as long as we’re successful. I for one beg to differ. Leadership and thus success comes from the top. Who owns the club is very much relevant I think.
Just look what happens when  the ownership suits itself rather than acting in the interests of the club and its fans. I mentioned Liverpool and Manchester United in my last blog on Wednesday so I won’t go over that ground again, but there are two further categories of owner.
The first is the likes of Thaksin Shinawatra, the former prime minister of Thailand who owned Manchester City – for a while. When he took over many said it was bound the end in tears. It did. He was convicted of corruption and had his bank accounts blocked. The good luck for Manchester City was another group from Abu Dhabi in the United Arab Emirates was prepared to buy the club. They’ve continued Shinawatra’s transfer shopping spree.
The second is the likes of those recently involved in the ownership of Portsmouth where staff and players have gone unpaid or paid late. The Premier League, to its credit, has recognised the problem of spoofers who have golden tongues but not the cash to back it up. The new financial rules it’s introduced are welcome but still not sufficient.
Meanwhile UEFA is working on strengthening the financial criteria in the licence all clubs are required to possess in order to compete in the Champions League, Europa League and Inter Toto Cup. Arsčne Wenger mentioned this in his address to shareholders at the Arsenal Holdings plc annual general meeting last month. His view is that the model of a “sugar-daddy” being able to carpet-bomb the transfer market with money not sustainably generated by the club will not last much longer.
Regulating in this area will NOT be easy. UEFA recognises that. It has established a high powered study group to work on the details of how such regulation would work. Premier League chief executive Richard Scudamore, who might not be everybody’s cup of tea but is an intelligent, insightful man pointed out in a radio interview recently that it would be difficult to stop a rich person agreeing to buy a “golden executive seat” at say £10 million a season. That’s true. My view would be though that that’s no different from a company or rich individual buying an executive box or Diamond Club membership at Arsenal. The problem comes where the transaction involves ownership rights. If a club can attract rich individuals or companies to part with large amounts of dosh for premium seats with no strings other than the package they’re buying then good luck to them.
The problem for me comes when the likes of Roman Abramovich treat their club like a personal play-thing. Chelsea simply isn’t sustainable without his millions. He’s recently converted about half of his personal loans into shares in the club. That’s progress. Shares or “equity” as its known goes to the back of the queue for payment if a company goes bust. There is still a major problem at Stamford Bridge though. Chelsea would be faced with the need to make massive cuts in its outgoings, mainly player wages, if Abramovich pulled out for any reason. That simply can’t be right for the game long-term.
Alisher Usmanov if he ever got his hands on majority control at Arsenal would probably lavish cash on the club, at least in the short-term. Aside from his qualities as a man – about which I have the gravest of doubts personally – would this propel us to the trophies we all crave? The record of clubs that constantly splash the cash in the transfer market isn’t encouraging. A recent book by academic economist Professor Stefan.Szymanski of the Cass Business School at London City University and football writer and commentator Simon Kuper Why England Lose: and Other Curious Phenomena Explained, is well worth a read on this subject. I frequently disagree with Szymanski’s ultra laissez faire free market economic theories. I’m neither a particular fan of Kuper’s writing style nor some of his views on the game. Yet they’re definitely on to something in their book.
They argue, backed up with factual analysis, that clubs who have a high player turnover and high transfer spending aren’t the consistently successful ones. What works, they argue, is stability in the playing and coaching staff. They also argue that when an offer comes along that is more than a player is worth then a club should take it. Sound familiar?
But could Usmanov’s Red & White Holdings Ltd (registered in the tax haven of Jersey in the Channel Islands) win the takeover battle against Stan Kroenke’s KSE (UK) Inc (registered in the US state of Delaware, famous for the opacity of its corporate laws)? I thought so a few months ago, and then swung against this opinion. On further reflection I think I was right first time. Yes, he could. It’s VERY difficult to know for sure, because it depends on the interests and motivations of Danny Fiszman and Lady Nina Bracewell-Smith and just how determined Stan Kroenke is to be involved at Arsenal in the long long-term.
Although Usmanov’s net worth has suffered with the world recession and credit crunch – steel and minerals are two areas that always plummet in a recession – and he has lots of his assets pledged against bank debt – he’s still worth a LOT of money – billions. If he were to launch an all-out big money offer for Arsenal he might just succeed. Money talks. Would Stan Kroenke really want to conduct a long drawn-out ownership war from the other side of the Atlantic if Usmanov were to offer, say, £12,000 a share? Kroenke could stroll off with a profit of £40-50 million on his investment so far at that price. As Kroenke is a value investor with no emotional attachment to the club he might be tempted to push back from the table. Likewise Danny Fiszman would walk off with another £120 million plus for his remaining 16.11% stake, on top of the £47 million plus he’s already cashed in on with Stan Kroenke (although he’s still waiting for some of the money). Lady Nina would be looking at a similar cash bonanza of £118 million or so for her 15.9% stake in the club.
There are factors that militate against this. Not least Danny Fiszman’s detestation of David Dein. Despite the fact that Dein has been pushed overboard by Red & White, who else would Usmanov bring in to chair the board? Money can have a surprisingly smoothing effect on such qualms however. I for one am not buying Fiszman’s protestations that he’s in it for the long-term. If he were he wouldn’t have reduced his influence by selling five thousand of his shares to Stan Kroenke at £8,500 a pop.
The other factor militating against an Usmanov takeover may be political concerns at home. Does the Kremlin really want a Russian oligarch engaging in the purchase of a high-profile trophy asset during such hard economic times in Mother Russia? Going against the wishes and political interests of the Russian government is NOT a good idea. Mikhail Khodorkovsky of the oil giant Yukos tried crossing the government politically. He got himself fitted up with a nine stretch in 2005. Khodorkovsky found himself stuck on with a second set of related charges earlier this year just as he became eligible to apply for parole. There’s a surprise. His conviction relates to fraud and tax evasion, almost a national sport for oligarchs who curry favour with the Kremlin.
There is no sign thus far however that the Kremlin is interested in placing a restraining hand on the shoulder of Usmanov, who works very hard at staying in with the Kremlin in-crowd. Three blocks of 50, 56 and 32 totalling 138 Arsenal shares have been traded this week in deals worth over £1.24 million. This can’t be Stan Kroenke as a) the trades would take him over the 30% compulsory bid trigger and b) as a director he has to declare every single share he buys or sells. Usmanov only has to declare movements in his holdings up or down 1%. He last declared he was at 25% back in February this year. He’s been known to be in the market since. The prices paid for the shares bought this week range from £8,900-£9,200. It’s just about conceivable that these purchases might be a value investor looking to cash in on a possible takeover but that’s highly unlikely. Almost certainly the buyer is Usmanov.
So the short answer to the question could Usmanov end up owning Arsenal is yes, he could. Whether he does depends on how determined Kroenke, Fiszman and Lady Nina are that he shouldn’t. Lady Nina is no fan of the current regime having been defenestrated from the Highbury House boardroom last year. She was apparently removed in a coup after refusing the club pistol she had metaphorically been offered. The reasons for her ouster remain shrouded in mystery. There are some reports that she’s kissed and made up with the board since, but I wouldn’t bank on that. Nor would I bank on Stan Kroenke being prepared to get in the trenches and launch a prolonged battle with Usmanov. What’s the upside for him as a businessman interested in profit? Likewise I don’t have much faith that Fiszman and Lady Nina will put Arsenal first and themselves second if Usmanov really flashes the cash.
I keep on thinking about that old Chinese curse, “May you live in interesting times.”
Keep the faith!

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