Why Kroenke doesn’t need Arsenal’s money for takeover

The Arsenal takeover by Stan Kroenke has people wondering if this is going to turn Arsenal into the next Manchester United off the pitch (i.e. debt).

It’s a legitimate question, but ultimately baseless. For starters, investors in Premier League football, regardless of their disconnect with real football fans and what they want, are keenly aware of the impact debt servicing has on their PR. John Henry used the negative sentiments against Liverpool’s previous owners to essentially take over the club without paying Hicks and Gillette any money – that is, whatever the duo spent out of their own pocket to buy the club was lost as the board worked with Henry and co. to get rid of the debt.

If Kroenke had come in with a leveraged buyout offer, the Arsenal board would have refused it. Going on that principle, and by the clear statement in Kroenke’s offer document that he’s not going to load any debt on Arsenal, the remaining question is – will he use Arsenal money to pay any debts he’s acquired for buying the club’s shares?

There’s nothing in his offer document that prevents it, but that’s the same as saying that there’s nothing to prevent him from selling the club to Usmanov after a few months. The existence of an outcome is quite different from the possiblity of that outcome taking place. It’s possible that Arsenal score 20 goals against Tottenham at White Hart Lane, but its’ not likely.

Does Kroenke need to borrow to buy Arsenal?

If he does, he’s probably going to do it in such a way that he doesn’t need to disclose his debts. Most fans (and analysts) forget that football club investments are akin to property investments – investors can accept short-term losses (in Kroenke’s case, paying interest on loans) if it means a long-term profit / value to the owner (sale – something Hicks / Gillette wanted to do, or owning a top-level sports team, something Henry, Abramovich, Kroenke and Glazers are interested in doing).

A lot of his wealth is tied up in intangible assets, but this is a man who has merely secured an agreement to buy Fizman’s shares (so he hasn’t actually paid cash for them) within 20 days of Fizman’s death and has an agreement in place to buy Lady Nina Bracewell-Smith’s shares too (again, no confirmation that he’s actually paid for these deals, just that he’s agreed to buy them). This, plus his existing wealth, turn this into a cashflow issue as opposed to a net wealth issue. He has the money, and if he can delay payments to the principle shareholders, he could then have enough cash to buy out other shareholders in the short-term.

Kroenke Doesn’t Need To Pay For / Buy 100% of Arsenal

The flip side is that while Kroenke was mandated to make the offer (because of the 30% rule), he knows that not everyone will sell their shares. Usmanov is unlikely to sell his 27%, and the Arsenal Supporters’ Trust has asked other shareholders to refrain from selling their shares to Kroenke.

He owns 29.9%, he has agreements in place for another 32% that he doesn’t need to pay for right now, another 27% is with Usmanov who won’t sell. That’s nearly 90% of shares of the total ‘700m+’ value stated for the club. If he HAS to buy the remaining 10-12 percent, it’s around 100m upfront.

Looking at the gradual takeover path (from 2007 to 2011) taken by Kroenke, you can rest assured that he has a financially sound plan in place that protects his own interests first, which means him needing to pay as little as possible up front. The above scenario explains to what extent that’s possible. He doesn’t need to use Arsenal’s money, especially when Arsenal already have stadium debt to pay off in the first place, and their cash reserves, like United’s cash reserves, are there for club use, not for interest payments.

Whether he can turn Arsenal into Manchester United on the pitch is a different story altogether.

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