The saga at Liverpool took a massive twist tonight as a Texan court has granted a temporary restraining order on the sale of Liverpool FC to New England Sports Venture for £300 million.
Just as the board at Liverpool (Broughton, Purslow, and Ayre) was meeting John Henry at Anfield to discuss the finer points of the sale, Tom Hicks and George Gillett seem to have flung one last throw of the dice by claiming damages up to $1.6 billion.
Earlier, Mr. Justice Floyd ruled in favour of Martin Broughton and the board of LFC after finding that Tom Hicks and George Gillett breached their contract with RBS when they tried to dissolve the board following Broughton’s acceptance of John Henry’s £300 million bid for the club.
The American owners openly admitted through a statement read by their representative in court that they had indeed breached their contract with RBS but argued that the duo had little option after being frozen out by “the home team.”
Paul Garolami argued that the current board at LFC purposely left his employers out in the cold and that they had even installed secret phone lines so that they could communicate with each other.
However, lawyers for RBS, Martin Broughton, John Henry and Liverpool FC were able to successfully argue that Tom Hicks and George Gillett were just trying to stall the deal and that they had no grounds on which to fight the sale.
Mr. Justice Floyd, the ruling judge, found in favour of Royal Bank of Scotland and co. and from there it seemed that John Henry and NESV becoming the new owners at Liverpool was only a formality.
A meeting between all interested parties was arranged for 20:00 at Anfield in which many expected the deal to sell the club to be rubber stamped.
Sky Sports door stepped every party as they entered and waited with baited breath to see if Tom Hicks or George Gillett would show up to finalise the deal.
However, the sale was dealt a potential killing blow for out of nowhere as Hicks and Gillett amazingly brought their case to a Texan court.
The duo launched a legal challenge to the sale of the club and sought $1.6 billion in damages.
They claimed that Broughton and RBS had received multiple better offers for the club and that the bank was sending out letters to interested parties instructing them not to provide equity for the American owners.
They accused RBS of “grand conspiracy” and of selling the club far below its true value after Forbes had recently valued the club at around £800 million.
Their statement in full reads;
The owners of Liverpool Football Club today reported that a Texas State District Court has granted a temporary restraining order (TRO) enjoining the Board of Liverpool Football Club (LFC) from executing a sale of the Club to New England Sports Ventures (NESV). The court set a hearing date of October 25, 2010.
The TRO request, signed by Judge Jim Jordan of the 160th District Court in Dallas, was part of a lawsuit filed today by the owners of LFC against Royal Bank of Scotland (RBS), Martin Broughton, Christian Purslow, Ian Ayre, NESV and Philip Nash. The lawsuit also seeks temporary and permanent injunctions, and damages totalling approximately $1.6 billion (over £1 billion).
The suit lays out the defendants’ “epic swindle” in which they conspired to devise and execute a scheme to sell LFC to NESV at a price they know to be hundreds of millions of dollars below true market value (and well below Forbes magazine’s recent independent $822 million valuation of the club) – and below multiple expressions of interest and offers to buy either the club in its entirety or make minority investments (including Meriton and Mill Financial). It describes how the defendants excluded the owners from meetings, discussions and communications regarding the potential sale to NESV and interfered with efforts by the owners to obtain financing for Liverpool FC.
The Club’s owners are represented by attorneys from the international law firm of Fish & Richardson.
The following are some of the key points in the complaint, which details the roles of RBS and the other defendants, and also describes previously undisclosed offers to purchase LFC:
“The Director Defendants were acting merely as pawns of RBS, wholly abdicating the fiduciary responsibilities that they owed in the sale.”
“RBS has been complicit in this scheme with the Director Defendants. For example, in letters from RBS to potential investors obtained just within the past few days, RBS has informed investors that it will approve of a deal only if there is “no economic return to equity” for Messrs. Hicks and Gillett. In furtherance of this grand conspiracy, on information and belief, RBS has improperly used its influence as the club’s creditor and as a worldwide banking leader to prevent any transaction that would permit Messrs. Hicks and Gillett to recover any of their initial investment in the club, much less share in the substantial appreciation in the value of Liverpool FC that their investments have created.”
“On or about October 4, 2010, Mr. Hicks received a letter of interest from a third potential purchaser represented by FBR Capital Markets (“FBR”), offering to purchase Liverpool FC for £375 to £400 million ($595 to $635 million). The letter informed Mr. Hicks that the potential purchaser would not need financing, possessed the funds to close the transaction, and intended to build a new stadium for Liverpool FC.”
“Additionally, the Plaintiffs learned just days ago about another potential investor that made a similar offer in the £350 to £400 million range that was communicated to Defendant Broughton and another unnamed co-conspirator in late August. According to this investor, Mr. Broughton never responded to the offer. Moreover, when the purported sale to NESV was announced, this investor again contacted Mr. Broughton and informed him that the offer, which significantly exceeded the NESV offer, was still on the table. Again, Mr. Broughton brushed this offer aside without further discussion.”
Liverpool’s board, obviously stunned by the move claimed that Hicks and Gillett’s latest move was “damaging” and “unwarranted” and that it could plunge the club into chaos.
The clubs statement read:
Following the successful conclusion of High Court proceedings today, the Boards of Directors of Kop Football and Kop Holdings met tonight and resolved to complete the sale of Liverpool FC to New England Sports Ventures.
Regrettably, Thomas Hicks and George Gillett have tonight obtained a Temporary Restraining Order from a Texas District Court against the independent directors, Royal Bank of Scotland PLC and NESV to prevent the transaction being completed.
The independent directors consider the restraining order to be unwarranted and damaging and will move as swiftly as possible to seek to have it removed.
A further statement will be made in due course.
While NESV have said they will pursue the sale of the club.
Leaving the question on everyone’s lips as to what jurisdiction did a Texan court have over the High Court in London?
With Justice Floyd finding in favour of RBS it would seem that a glimmer of hope has been given to the American pair.
If RBS operates in Texas then the courts there would have jurisdiction over its business. Currently Royal Bank of Scotland operates out of Houston and employs around 100 people in the bank.
The move by Hicks and Gillett has thrown the sale of the club into doubt although it did emerge in court that NESV has first option to buy the club until November 1. However, that rests upon Martin Broughton, Ian Ayre, and Christian Purslow being members of the board.
NESV have already indicated that they would pull out of the sale if RBS pushed Kop Holdings into administration and Henry pulling out of the deal would definitely be to the benefit of Hicks and Gillett.
It also emerged through the court that Hicks and Gillett’s business model for Liverpool FC is not what one would call transparent.
The club currently owes RBS £97 million, above the club is Kop Holdings which owes the bank some £200 million then there is Kop Football Holdings Ltd then above that there is Kop Football Cayman Ltd and finally above that there is Kop Football LLP which is a joint venture for the pair.
If the High Court hearing is final then the sale of the club will see the duo lose out on their £144 million investment in the club.
However, if the Texan court can be proved to have over ruled the British High Court then the sale could collapse and another higher bidder come in for the ailing club.
Broughton admitted in court that over 130 interested parties were contacted about the sale of the club but that he felt that NESV were the best option for the club going forward.
Hicks and Gillett’s claims that Broughton turned down higher bids would seem to go with their other claims that RBS contacted potential bidders about their tender offers.
It leaves the club in murkier waters than ever.
Hicks, Gillett, Kop Holdings, and LFC has until October 15 to pay RBS back around £280 million. If the injunction is not cleared by then then it would appear that RBS can force the club into administration and a potential nine point penalty.
That is now unclear as the power of the TRO has yet to be figured out. Taking a worst case scenario of the situation and Hicks and Gillett win; they will be able to dissolve the club and take damages from all the relevant parties. Leaving them in a better place than ever, and still owners of the club.
If their TRO turns out to be a damp squib then the sale to NESV will be pushed through.
It is fair to say that RBS and Broughton thought that H&G, at worst, would appeal todays decision. However, the counter claims, TRO, and demand for damages has left the sale of the club before October 15 looking distinctly unlikely. Whether RBS, under these new circumstances, could force the deal through at that date is unclear to say the least.
Hicks and Gillett’s war against “that noise from over there” (the Kop) has taken yet another turn.
A day that many Reds fans celebrated has turned sour. Just as they, like the Chilean miners, get to see daylight for the first time in what seems an age. They find all they are left with is more toxic red sludge.