When a new owner takes over a football club, invariably a figure is attached to his purchase – for example like £81million paid by Carson Yeung for Birmingham City or £76million paid by Tony Xia Jiantong for Aston Villa. These figures are often headline amounts and don’t go into the full detail of how an offer has been set up, but they’re useful when writing articles. I’ve yet to see anyone hang a figure on Paul Suen though for how much he paid for Blues.
Part of this is down to the fact that Suen hasn’t actually bought the club; he’s taken control of the ultimate parent company in Hong Kong, Birmingham International Holdings. It’s also down to the fact that his buyout wasn’t a simple case of buying x shares at price y, but a much more complicated scenario of subscription deals, convertible notes and the kind of accountancy mumbo-jumbo that sends people to sleep.
The full details of how that deal was to happen were sent to shareholders in a circular back in August. That detailed how the deal was to work. It needed to be a mechanism whereby shares were issued to Paul Suen – partly to repay the loan he had placed in the company, and partly to bring in new capital. It also needed to dilute down what Carson Yeung and his concert parties had, while giving opportunity to regular shareholders to maintain their own percentage of the company and to ensure that there was a minimum of 25% of the company in public hands. This was done in four stages.
Firstly, with 9.5billion shares available there were far too many around to issue more. That needed to be sorted, so the company consolidated the shares 19:1 – so for every 19 old shares a person owned, they would receive one, taking the total shares down to 454million or so – a much more manageable figure for the next stages.
Secondly, an open offer was made to all shareholders so that they could buy 1 new share for every 2 shares they owned, ensuring that they could maintain their percentage stake. Carson Yeung and his concert parties signed an agreement to say that they wouldn’t take part, ensuring they got diluted down.
Thirdly, a subscription agreement and a convertible note agreement were signed with Suen. The subscription agreement was for $250million, while the convertible note agreement covered the $150million loan Suen had already put into the company to keep it going during the time all this was going on. This means Suen had paid a total of $400million for the company as it stands.
Fourthly, Suen then agreed to place 1.175billion shares out of the 3.125billion shares he received in the subscription agreement at HK$0.08 each to ensure that the public float remained in place. This means he has recouped HK$94million.
Therefore, by my reckoning I believe Paul Suen has paid $306million for his stake in the company (which stands at 50.64% until he converts his convertible note) – or in English terms around £32.27million at current exchange rates. Of that, he had already loaned the company $150million so taking control had cost him $156million – or roughly £16.45million.
Why does it matter?
Suen has a reputation for buying distressed companies and selling them on at a profit. With this in mind, it interests me to be able to work out how much he has laid out so we know what sort of figure he is going to want to look for to sell the company on to make a profit.
I think Suen has done a blinding deal for himself; with the restructuring in place the club has around £12million in working capital to cover to the end of the 2017/18 season with a further £12million in place for transfer fees, meaning as it stands he doesn’t really have to put much more money in. He can also take another 10% or so of the company by converting his convertible note which covers the loan already made.
However, the smartest bit is that for £40million, he’s effectively got himself two things worth that much. By backing another business into the holding company, he can then sell of both Blues as a separate entity and the holding company with its precious HKSE listing – which he is surely going to make more than £40million on. Of course if Birmingham City are able to pull off a miracle and get promoted – then the figure he can sell the club on for will go up exponentially.
From an optimistic standpoint, I’d say that this confirms the initial belief that Suen will be at least a good caretaker owner; however the question remains if the chance is there to go for the big prize, will he risk it?