Financial Alert: Could Arsenal be forced to delist its stock in the near future?

Stop the Presses! Could Arsenal be forced to delist its stock in the near future?

By: Anne

*I would like to thank Shard for bringing this critical issue to my attention. Otherwise, I probably wouldn’t have noticed it either.

While we’ve all been settling into a lazy Summer with the only “exciting” topics of discussion being Euro 2012 and Arsenal transfer rumours, we’ve missed out on quite a critical issue indeed, which, for some reason, seems to have slid by underneath the media radar (as critical issues concerning Arsenal so often do these days).

What I’m talking about here is the fact that, on 14 May, Arsenal’s stock exchange announced that it was going out of business. And if this shut down had proceeded as announced, Arsenal would have likely been forced to de-list its stock. Or at least, we would have been forced to find a new exchange to list on, which would have forced us to de-list our stock and then re-list it somewhere else (which would have its own complications).

Yes, you heard me correctly. Arsenal is facing a potential forcible de-listing of its stock. Specfically:

“Arsenal Football Club is one of over a hundred small companies that will have to find a new listing after British stock exchange Plus Markets announced it was planning to shut down after it failed to attract an acceptable takeover offer.

The group had put itself up for sale in February but following a failure to find a buyer, it has informed the financial regulator that it plans an ‘orderly closure’ after a drop in its cash reserves.

‘The regulated actives of the group will be wound down over a period of up to six months in order to minimise market disruption,’ the company said in a statement to Reuters…the group said it would help listed companies find ‘suitable alternative arrangements.’”

And while we appear to have been saved from this eventuality for the time being by a takeover of the PLUS markets by a company called ICAP, it is apparent that the PLUS Markets are proving to be a loss-making enterprise, and have in fact been bleeding money for the last couple of years. Which, in my opinion, means that the future of the exchange is far from secure.

Also, with a change in ownership, we don’t know what sort of changes this will ultimately force on Arsenal in order to maintain its listing.

So, with this in mind, let’s take a look at the potential implications for Arsenal if the PLUS markets were to close. Unfortunately, this is a situation where I don’t know enough about the technical workings of the British stock markets (yet) to tell you in exact detail what this means for Arsenal. However, what I can tell you right now is that it is no joke and no minor problem.

To the contrary, it appears that such a closure would have some quite serious potential implications for Arsenal’s financial situation, and correspondingly for Arsenal’s ownership situation (how often have we heard that one over the last five years?).

So, I beg all of you to please shake off the Summer malaise for long enough to work through the financial jargon in this article to find out what these potential implications for Arsenal might be. It’s not too complicated, and I find it to be not just in the category of “important,” but rather somewhere around the level of “terrifying.” And it’s definitely something for Arsenal fans to be keeping an eye on.

Specifically, the following article details the three options Arsenal would have had if the shutdown of the Plus Markets had occurred as announced, and they all sound extremely bad to me:

“Should a last-minute deal fail to materialise…there will be great uncertainty for the 148 companies listed on the exchange.

Financial News spoke to a number of lawyers and brokers about the alternatives for these firms. The options are as follows:

Move to London Stock Exchange’s Alternative Investment Market…Move to the Main Market [i.e., the London Stock Exchange itself]….[or] Become a private company [i.e., delist their stock].”

So, let’s summarize this. According to the above article, if the Plus Markets had closed within the next 6 months (as announced), Arsenal would have had the following 3 options:

1) Change their listing to the AIM exchange;

2) Change their listing to the Main Market; or

3) Delist their stock.

But hang on…. It looks like one of those options for a new listing is already off the table, due to the stock holdings of a certain Uzbek, who has been uncharacteristically out of the media for awhile (Yeah, it’s that guy again… Weren’t you getting tired of not hearing his name? Although we shouldn’t rule out Kroenke’s role in this either):

“For the largest firms, the Main Market on the London Stock Exchange is an outside opportunity…

However, few firms will be able to meet all the requirements, or be willing to pay to do so.

Rather than abide by the Plus Rule Book, firms will have to follow the more stringent listing rules of the UK Listing Authority, including a minimum of 25% of shares in public hands and trading record of at least three years.

This rules Arsenal out – the majority shareholder is American Stan Kroenke, who holds 66.64%. The next largest shareholder is Russian-Uzbek Alisher Usmanov, who owns 29.11%.”

So, strike one. We can’t list on the LSE main market. That leaves us with two options (assuming that this article has its facts correct):

1) List our stock on the AIM market; or

2) Delist our stock.

So, what would it mean for Arsenal if we were required to change our stock listing to the AIM market? (Hint: Nothing good):

“For the largest firms on Plus Markets, such as Arsenal Football Club with a market capitalisation of over £1bn…one option is move to the larger Aim market.

This poses a number of hurdles. Companies looking to list on AIM must produce an admission document that includes a variety of information, spanning information on the company’s directors, from their business activities, to their financial positions.

The firm will also have to hire a nominated adviser, or nomads, which include firms such as Cenkos Securities, Finncap and Seymore Piece. This process may take up to two or three months. One lawyer said that it will result in ‘quite a lot of cost and quite a lot of beefing up of board structures. This will only be an option for the larger firms.’”

The above area is the point in this article where I don’t have enough expertise about the London stock markets (yet) to tell you in detail what this would mean for Arsenal. However, I can tell you that it’s nothing good just from the following sentence alone:

“One lawyer said that it will result in ‘quite a lot of cost and quite a lot of beefing up of board structures. This will only be an option for the larger firms.’”

If this listing is only an option for the larger firms, then it appears to me that “quite a lot of cost” might be quite a bit of an understatement in terms of the financial outlays that such a move would require. And remember (as I detailed in my article Why Does AST Talk of Failure in the Future? ), Arsenal is already under pressure to free up capital by issuing new stock, which could have significant implications for our ownership structure.

Under these circumstances, any unexpected financial hit would weaken our current board’s position significantly in terms of resisting those who would want us to take certain steps to raise more capital. Also, what would this do to Arsenal’s potential for transfer spending and player signings? I don’t know at this point, and I guess it all depends on exactly how much cost we’re talking about here. Hopefully it’s something we can handle. But if not, then what?

According to the above article:

“incurring the extra cost in moving to a different market may force many firms to become private once more [i.e., delist].

Excluding Arsenal, the average market cap of a Plus Markets firm is just £9m. One lawyer said: ‘Unless these firms use this as a trigger for a fund raise or an acquisition, their options are realistically none, apart from letting their listing lapse and return to private life.’”

To me, the above makes it sound like we’re talking about substantial financial outlays. And it makes me wonder, would this put us in a situation where, with regard to maintaining the ongoing operations of the club, it would only make financial sense for us to delist our stock?

And aside from the money, there’s still this problem:

“One lawyer said that it will result in ‘…quite a lot of beefing up of board structures.’”

I don’t know what the above means for Arsenal at this point. It might mean nothing, and only apply to the smaller companies. However, it’s no secret that Arsenal’s board has been under assault for the last 5 years. And to me, it seems like anything that would require us to make changes in that area could be nothing good for us. Again, it has the potential of putting us under significant pressure to delist our stock.

And what would delisting Arsenal’s stock mean? We don’t know. Because if we delist, Arsenal stock transactions would occur out of the public eye, and could be made secretly. And while that’s not anything nefarious in and of itself, I can think of ways that certain people could use that kind of secrecy to their advantage. Can’t you?

As of now, the only statement I can find from Arsenal on this subject is the following, which was issued on the 18 May:

“Statement regarding PLUS Markets Group plc

The Directors of the Company note the announcement made by PLUS Markets Group plc on 14 May 2012 regarding the orderly closure of the PLUS-quoted market over a period of up to the next six months.

The Company is reviewing its position and the options available to it in light of the announcement and will make an announcement as appropriate in due course.”

If this closure of the Plus Markets had proceeded in accordance with the above, perhaps we would have finally learned something definitive about Stan Kroenke’s intentions for the future of Arsenal. And perhaps we still will, depending on how things proceed with Icap’s takeover of, and future plans for the PLUS markets, which has saved all of the listed companies from being delisted (for now):

“Plus Stock Exchange, which manages the listings of about 140 companies with a combined market worth of £2.3bn, was yesterday bought by interdealer broker Icap, saving businesses, including…Arsenal Football Club, from having to find a new home.

Parent company, Plus Markets Group, shocked its clients this week with an announcement that it planned to close its flagship exchange after failing to find a buyer for the business.

However, yesterday’s deal to sell the operation to Icap means the loss-making bourse can remain in business, much to the relief of the thousands of investors who own shares in companies listed on exchange.

In a statement, Plus Markets Group said it had sold the business to Icap on a ‘cash-free, debt-free basis for a nominal amount of £1.’”

So, for the time being, it looks like we might be saved. However, it is clear from the above that PLUS is proving to be a loss-making enterprise, which means that its future, in its current form, is far from secure. Also, the question remains about what Icap’s intentions are for the future of the exchange, and more particularly, the companies listed on it.

In short, this is a situation that we definitely need to be monitoring and keeping a close eye on as it develops. And in my opinion, the media should be ashamed of itself for not informing us that this situation is ongoing. And while I suppose that there’s nothing new about that, it does make you wonder why they’re being so quiet.

And I must say…. I’m quite curious to know whether certain corporate raiders who have targeted Arsenal in the past might have had a hand in the development of this situation… So, let’s keep an eye on it, fans.

————————-

Ref Review: Everton 4 Sunderland 0.  A game of wrong calls.

The chronicles of wasted time – the transfer window thus far

On this day in 1893: Arsenal were elected into the Football League

As Bankia fails, Real Madrid is teetering on the abyss

Ref Review: Man U 1 Fulham 0.  Oh for goodness sake.

All the players who will join us next season