The first thing to note about Stan Kroenke’s takeover is that it cannot be stopped. The American already owns 67% and has secured an irrevocable commitment from Red and White Holdings, owned by Alisher Usmanov, for the Uzbek billionaire’s 30%.
Under UK takeover rules, anyone owning more than 90% of a company’s shares can force any other shareholders to sell their stock for a fee. Kroenke Sports & Entertainment has said it intends to do precisely that.
This means Arsenal Holdings, the club’s parent company, will cease to be a public limited company, with shares that are publicly traded.
This is where concerns about transparency and accountability come in. The company will no longer have to hold an annual general meeting, traditionally an opportunity for shareholders – many of them fans in Arsenal’s case – to ask questions of directors and hold them to account. Kroenke could even fire independent directors at will, with no repercussions.
Arsenal will still have to file financial accounts at Companies House but can wait nine months to do so instead of six. In practice, private companies sometimes delay filing accounts for more than a year, because penalties for late filing of accounts are paltry. That means fans might learn about key financial decisions long after they had happened.
All of this adds to concerns that the club’s dealings will be opaque, a feeling compounded by the fact KSE is based in Delaware, the US state notorious for financial secrecy.
Another major concern among Arsenal fans is that the club’s steady stream of revenues could end up paying off debt, or even financing other parts of Kroenke’s business empire, instead of buying players.
It will cost KSE £602.4m to buy the shares it doesn’t already own, with Kroenke putting up £45.4m of his own money. The remaining £557m is funded by a two-year “bridging” loan from German lender Deutsche Bank. The loan cost £5.6m to arrange and accrues annual interest linked to international money-market rates. At current rates, the interest would be more than £15m each year.
In its statement to Arsenal shareholders, KSE said none of this will have an impact on Arsenal’s finances but that bridging loan will have to be replaced by some other form of finance and it isn’t clear what that will look like. If it is a bank loan, that will be arranged after Kroenke has taken the club private, so it could take some time for the details to come to light.
One way KSE could fund its borrowing is by charging Arsenal management fees for miscellaneous services, as well as taking dividends. Again, fans will only be able to find out if that is the case by viewing the club’s accounts at Companies House.
There are other points worth noting. It looks like Kroenke has driven a pretty hard bargain. The shares are priced at £29,419.64 each, valuing the club at £1.8bn. But Arsenal shares have recently traded hands for up to £35,000. At that price, the deal would have cost Kroenke £726m rather than £600m, and valued Arsenal at £2.1bn.
There are also some legal caveats attached in the bridging loan from Deutsche Bank. For instance, if Kroenke or his wife – the guarantor of his loan – were to die, that would be considered a default on the loan. In that case, or in the unlikely event the multimilionaire couple go bankrupt, Deutsche Bank gets a stake in KSE. That would make the German lender, for a while at least, a major shareholder in Arsenal football club.