The Rough Guide to Steve Morgan's Scouse Offering

Posted by Rushian on May 12, 2004, 04:54:26 PM

Steve Morgan held a press conference this morning outlining his proposal to inject £73m of new capital into Liverpool Football Club. We have produced another rough guide to what's going on. It's in two parts: the first covers the press conference and the second covers the nitty gritty of the facts and figures and we show how Steve Morgan could easily end up as the largest shareholder, or even more than 50% of the club.

The Press Conference

He confirmed that he had written to the LFC Board of Directors on Tuesday with full details of his proposal, which remains open for 7 days. He has asked the Board to provide a formal written response within that timescale.

The proposal includes a rights issue of new ordinary shares, open to all shareholders, which will generate approximately £61million of new money, together with a new share issue directed at the supporters of the club which could generate a further £12million. Both would be underwritten by Steve Morgan's company Bridgemere Investments Limited. The offer is a counterbid to the Thai talks and proposals.

He emphasised that these proposals would keep the ownership of the club where it belonged, with the supporters of the club, emphasising his lifelong support for the Reds. The funds would be used to subtantially strengthen the playing squad and partially fund the proposed new stadium.

He proposes to do this in three steps.

1) Firstly by having a 10 for 1 share split in advance of the rights issue, which would result in a revised number of shares in issue of just under 350,000 (there's 35,000 at present). He stated the share split is "designed to enable all shareholders of whatever means to participate, in some way in, the rights issue. The share split will also increase the liquidity of the shares in the club, which in the long run will assist those supporters wishing to become shareholders."

2) A 1 for 1 rights issue ranking equal to the existing shares at £175 per share which will generate just under £61m. This offer would be open to all shareholders.

3) A further 10% of totally new shares to be issued at £175 per share, with the intention that these would be sold directly to the supporters of the club. This would raise a further £12m.

These three steps would raise a total of £73m and both the rights issue and share issue would be underwritten in full by Bridgemere on a nil fee basis (the fee would normally be around £1.5m if the finance was coming from the City).

The two conditions attached to the proposal are that Steve Morgan is appointed to the board following the rights issue and that Brigemere has additional board representation proportional to the outcome of the rights issue. It is not a condition of the offer for the Chairmanship of the club to change, David Moores being able to participate in the rights issue and remain the largest single shareholder.

Morgan stated his proposal would allow the commercial rights to the Asian market to remain with the club, allowing LFC alone to benefit from these rights. He also believed the proposal would allow fans for the first time to participate in the fortunes of the club, the scarcity and price of shares having prevented this previously. He also emphasised "I have only one goal in all of this and that is to help Liverpool become the number one team in both England and Europe."
 
Two issues which have been of great concern to many fans have been Mr Morgan's views on a ground share with Everton, and taking LIverpool onto the stock market in a similar way to Manchester United's listing. Transcribed below are his answers at the press conference to both these questions:

What Morgan said about groundshare:

Reporter: There's some speculation that you'd be interested in groundshare proposals with Everton.

Morgan: Like any true Liverpool supporter, I would always always prefer us to have our own ground. And that would be the premise of it to start with. The only thing I have said and I've been misquoted on this, I'm glad for the opportunity to state the issue, is that if the offer is accepted, if I am on the board and if I have my ... I clearly would have my say, I think you have to always look at all options, but clearly and unequivocably my preferred option is definitely for Liverpool Football Club to have its own ground.

On the issue of the club becoming listed on the stockmarket:

Reporter: You've got about 5% of the club at the moment, if this is accepted can you say what proportion do you think you'd control and also what is the difference is between a rights issue and a share issue?

Morgan: Right I'll answer the second part of your question first. A rights issue is to existing shareholders, so all the existing shareholders will have a right to subscribe for new shares. Which is why we've offered to do the share split to make the shares more affordable cause otherwise if they didn't split them they'd be £1750 per share so at least somebody who has got one share for example at the moment, would have ten under this new structure and they may want to subscribe for two or three or four of those ten. So that's a rights issue. A share issue is brand new shares. But I've got to stress that this, we do not ... I have no desire, and it's been reported several times in the past that I want to take Liverpool Football Club public. That is not the case. Liverpool Football Club are already a public company and have been for many many years. All I want to do is make the shares available to a wider fanbase so that ownership is spread amongst the lads, like myself, who go to watch Liverpool every week.

Facts and Figures

Steve Morgan is effectively valuing the currently issued shares at £1750 each, before the injection of extra capital through a rights and shares issue takes them to £2875. They've been exchanging hands at £4000-4500 via the stockbrokers Blankstone Sington in the last year. Morgan's proposal then has a three stage plan (all figures are approximates):

1) a 10 for 1 split of existing issued shares. Currently there are 35000 shares. This would become 350,000 shares with each shareholder getting 10 of the new shares for each one currently held. All shareholders would retain the % they currently have. The three largest shareholders would be:

Moores 178500 (51%)
Granada 34650 (9.9%)
Morgan 17850 (5.1%)

2) Next would follow a 1 to 1 rights issue. This would introduce another 350,000 shares, priced at £175 each raising £61m, which each shareholder invited to apply on a pro-rata basis according to their current shareholdeing. David Moores would be able to buy 51% of these shares if he so wished. Morgan has proposed to underwrite the whole issue and will take up the "slack" if any shareholder chose not to invest.

To maintain his current 51% holding David Moores would have to invest £31.1m . He can chose to invest anything up to this amount. Any rights not taken up by Moores will be bought by Morgan. Looking at the two extremes of no investment and full investment by Moores, the Morgan v Moores picture would look like:

Moores invests fully:

Moores 357000 shares (51%) at a cost to him of £31.2m.

Morgan would have a minimum of 35700 shares (5.1%) at a cost of £3.1m, rising to a maximum of 189350 shares (27.05%) at a cost to him of £30m. This maximum figure depends on the take up of the rights issue by shareholders other than Moores and Morgan himself.

Moores doesn't invest at all:

Moores 178500 shares (25.5%).

Morgan would have a minimum of 214200 shares (30.6%) at a cost of £34.4m, rising to a maximum of 367850 shares (52.5%) at a cost of £61.3m. This maximum figure again depends on the take up by shareholders other than Moores and Morgan himself.

3) An issue of 10% new shares would then follow, directed at the fans. These 70,000 shares, priced at £175 each would raise £12m, and would take the total number of shares to 770,000. We're assuming current shareholders would be ineligible for this and David Moores would not be allowed to invest in the scheme. Again Steve Morgan will underwrite this issue and buy any shares not taken up.

Of this final total of 770,000 shares:

David Moores would have 178,500 (23.2%) if he hadn't invested in the rights issue. If he had invested fully he'd hold 357000 (46.4%) and would thus lose overall control whatever the share buying pattern under Morgan's proposals.
 
Steve Morgan could now hold anything from 17850 shares (4.6%) to a maximum of 437840 shares (56.9%, costing him £73m), again depending on the take up of the rights issue and the share issue.

What would David Moores need to invest to guarantee he'd remain the largest shareholder?

He'd have to own 308200 shares (40.0 %). Steve Morgan could then have a theoretical maximum of 308140 shares (39.9%). This would entail an investment by our present chairman David Moores of £22.7m in 129700 shares.

The Reality?

If Steve Morgan's proposal was accepted, we'd expect David Moores to invest in shares to try and retain his largest % shareholding position. The question is how much would he need to invest? It is hard to predict the uptake in the rights issue to existing shareholders however Granada are unlikely to invest any more money in the club, so Steve Morgan would mop up their shares in the 1 for 1 offer.

We believe the £12m share issue to fans would be extremely well supported and Steve Morgan may not need to underwrite this. So David Moores may be able to stay as the largest shareholder by investing around £15-20m, but correctly predicting that figure is like picking the winner of the National. You get it right more by luck than judgement!

So that's the bare bones of the case - we haven't touched on whether the two men could successfully work together in the board room or press speculation of the manager's future. We believe both lie outside the scope of an impartial analysis of the current proposal.

If you have any questions you can email us at:

lfc_isa@hotmail.com

Independent Liverpool Supporters Association
http://www.ilsa.org.uk/

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