For those of you who want to see the original announcement for yourself, you can do so by clicking this link.
Before going any further with this article, I must offer my standard caveat that I’m not a lawyer nor an accountant, and that as such I strongly recommend anyone thinking of investing in ZFG that they seek professional advice before doing so.
What Does This Announcement Mean?
One of the things I’ve noticed with announcements like this is that it continues to cause confusion for some fans about the ownership situation at Birmingham City; and if these kinds of announcements show that there is a way for the former ownership regime to regain control of the club.
So before going into detail about what this announcement means, I think it’s worth recapping why it has been made in the first place – and why there is nothing to worry about from an ownership perspective.
As I mentioned in the opening paragraph of this article, the announcement was made by ZO Future Group, which is the new name for Birmingham Sports Holdings.
While Tom Wagner and Knighthead have full financial and operational control of the club, they still only actually own 45.64% of it.
ZFG maintain ownership of 51% of Blues, and while they have no control over what happens at St Andrews they are legally obligated to make announcements to the stock exchange about any transactions involving the club that are above certain thresholds, as it can technically still affect the value of ZFG shares.
With the improved legal and accountancy competence that Knighthead have bought to the Blues ownership situation, there has definitely been a push on ZFG to make this kind of announcement in a timely and precise manner.
This is good both for Blues and for us as fans because it means that we can rest assured that the club is being run properly.
Even better, as a by product of the need for this kind of announcement we get a bit more transparency into the finances of the club.
The announcement made on Thursday is pretty heavy on legal jargon but it does give us a couple of important bits of information.
The first bit of information that I think is imporant to understand is the reason for Shelby Companies Limited upping the loan facility available to the club; namely that Blues have burned through the first £50M made available already.
Bearing in mind the money that has been spent on both the ground and on the squad, it should be pretty obvious where that money has gone.
And while some fans might be getting excited about another splurge of cash it’s my gut feeling that this facility is more to ensure that there is a simple source of cashflow available to pay the bills for the next period of time until the next chunk of money – either transfer, broadcast or commercial – comes in.
However, on deeper reading of this announcement there is a second bit of information that I’m not sure many have grasped, which concerns the ownership of the Shelby Companies Limited investment vehicle.
New Investors
Last week there was a flurry of filings made to Companies House by Shelby Companies Limited regarding an allotment of shares.
While there was no disclosure made as to who had bought these new shares in SCL and thus become investors in the club, I had heard from my own sources that Knighthead had indeed allowed some new investors to put some money into the project; albeit without being allowed the rights to vote or to appoint directors.
I had thought about writing something about those filings but one of the things that stopped me was that I found without context to the information, I couldn’t actually offer much insight into how much of a chunk had been sold much less how much investment had been brought in.
However, the announcement made by ZFG on Thursday has a section which details information about the relevant parties involved such as SCL.
The SCL section helpfully goes into detail about the breakdown of ownership of that company.
As per the last confirmation statement filed by SCL in May, the breakdown of the ownership of SCL was:
- 69.3% owned by Knighthead Annuity and Life Assurance Company (KALAC)
- 27.4% owned by Knighthead Master Fund LP (KMF)
- 3.3% owned by Tom Brady.
The announcement made ZFG today has some slightly different figures, to wit:
- Approx 64% owned by KALAC
- Approx 25% owned by KMF
If we assume Tom Brady still owns 3.3% of the club, then that leaves 7.7% which has been sold off to new investors. It’s possible that this figure is higher as I suspect that Brady’s investment has also been diluted.
We won’t know these figures for sure until further filings have been made to Companies House, but I do think that it is a reasonable assumption that a sizeable chunk of SCL has been sold on, in part to dilute the risk to Knighthead.
Another thing the announcement confirms is that Tom Wagner himself has seen his own financial interest in SCL dip to under 10%. The reason for this is given as capital raises performed both by SCL and by KALAC.
I might have this dead wrong, but I think this is a good thing as it means there are more people out there who believe in what Wagner and Knighthead are trying to do with Blues and who are willing to back the project.
And while it’s essential that any investors work together, having several people involved insulates the club from any shock caused by a sudden change to an investor’s fortunes – something the club has suffered greatly from in the past.
The Future
One thing this announcement has brought up again is the future ownership of Blues; ie how much longer will the club be tied to its estranged Hong Kong parent company.
I’m not sure that this announcement has done anything to accelerate the timeline for Knighthead to complete the deal.
As it stands, I still believe we’re looking at some point before the end of next season for the second tranche of 51% of shares to be acquired by Knighthead.
Yet I think we need to understand the situation ZFG finds themselves in.
As part of the announcement ZFG have to confirm to shareholders that they’ve explored all avenues to bring in cash for the club.
On page six it’s laid bare as to why they have no choice but to take on more debt from SCL.
ZFG confirm that if they went to an external lender, they’d have to pay more interest, and the time taken up by the necessary due diligence process as well as negotiations make going to an external lender impossible.
Furthermore, ZFG have confirmed due to the state of their accounts they’d find it difficult to borrow money from anywhere else and would potentially have to provide more collateral and securities to borrow money.
Likewise, the other option to ZFG – another issue of new shares or similar – would require lengthy discussions with potential investors and / or underwriters which would cost more money and make it uneconomical to do.
In short, Tom Wagner and Knighthead have done what I always believed had to be done with regards to the sale of the club.
They have screwed ZFG into the ground legally speaking and have left them no wiggle room whatsoever.
This is why even though Knighthead own only 45.64% of the club, we as fans should have total confidence that there is now no going back to the bad old days.
While I appreciate this kind of stuff is boring and that seeing Blues win seven times on the spin is much more fun to talk about, I also think that it’s important to keep driving home the message of how financially secure Blues are going to be.
Having watched the shit show unfold further at Reading FC – a shitshow that could well have been us had Knighthead not got involved – I also want to make sure Blues fans have reassurance that we are on the way back to the good times.