Blog: Knight won't make a "penny profit" from any share sale

[Creaky]

What you've quoted from the accounts answers your question.

Note 27 says that TB converted £40m of loans into equity. Note 28 says that 40m shares were issued at £1 each. As it's a private company, fair value is set by transactions done. Thus by doing this, TB effectively set the "fair value" at £1/share, thus there is no gain/loss.

FWIW, I think there must be some "political" reason why TB was happy to accept only 40m shares for his £40m debt, since by any normal share valuation, the share price one would impute would be, imo, well under 10p a share. I can think of various reasons why TB might want to do that, but I have no desire to speculate on his motives.

However, that decision does allow DK to say, if he wants to, that since TB "paid" £1/share, that's what the shares are worth.

Excuse my ignorance on these matters but I find them quite interesting.

Are you saying that the CLN held by TB would allow him to buy equity based on what ever value he wanted to put on them? If that were the case wouldn't that produce a potential liability that would have to be included in the accounts? Likewise if the "fair value" of the shares could be set at say 10p by the auditors then by redeeming the CLN at par couldn't it be argued that the company has made a gain which would reduce the losses of the company for the year?

Don't CLNs fix the share price either at plus or minus the "fair value" or a fixed figure? One with an open ended value seems somewhat unusual.

 

[Creaky]

We don't know. Note 6 doesn't specify who the recipients of the Directors' remuneration were (as is permitted by the Companies Act).

So we can't say with confidence that TB hasn't "had a penny back"

 

[Goldstone1976]

Excuse my ignorance on these matters but I find them quite interesting.

Are you saying that the CLN held by TB would allow him to buy equity based on what ever value he wanted to put on them? If that were the case wouldn't that produce a potential liability that would have to be included in the accounts? Likewise if the "fair value" of the shares could be set at say 10p by the auditors then by redeeming the CLN at par couldn't it be argued that the company has made a gain which would reduce the losses of the company for the year?

Don't CLNs fix the share price either at plus or minus the "fair value" or a fixed figure? One with an open ended value seems somewhat unusual.

No, I didn't mean that, though I can easily see how how you might conclude that from the ambiguous way I phrased the response. The conversion price is agreed at the time of the loan note. It is possible to include a "ratchet", either up or down from the starting price (for example by linking it to increased profitability), but that would make for a clunky and highly unusual instrument; and there is no evidence that such a ratchet exists.

The most likely scenario is that £1/share was agreed at the time the notes were issued, but without seeing the notes (which I never will!), I can't be certain.

 

[Goldstone1976]

So we can't say with confidence that TB hasn't "had a penny back"

It's possible (from the accounts) that he's received either a salary &/or a pension contribution (capped at the "highest Director emolument" level specified in the accounts). I don't know if TB/ the club have said whether he's drawing a salary in one of their many meetings/briefings or not. I don't consider it any of my business.

It's starting to seem to me that you're more than just curious about these topics. You seem to have an agenda. All of your questions are phrased in a negative rather than neutral way. I'm answering them in a neutral way, but you keep coming back for more. Do you in fact have an agenda here?

 

[Creaky]

No, I didn't mean that, though I can easily see how how you might conclude that from the ambiguous way I phrased the response. The conversion price is agreed at the time of the loan note. It is possible to include a "ratchet", either up or down from the starting price (for example by linking it to increased profitability), but that would make for a clunky and highly unusual instrument; and there is no evidence that such a ratchet exists.

The most likely scenario is that £1/share was agreed at the time the notes were issued, but without seeing the notes (which I never will!), I can't be certain.

As the transaction took place after the 2011/2012 year end and IF a "fair price" for the shares were set, (by whatever means), at say the 10p you suggest, then shouldn't the accounts for 2012/2013 show a gain of £36 million together with a potential tax liability?

If DK got takers for his shares at £1 a time I presume that would make setting the "fair value at less than £1 difficult?

 

[Goldstone1976]

As the transaction took place after the 2011/2012 year end and IF a "fair price" for the shares were set, (by whatever means), at say the 10p you suggest, then shouldn't the accounts for 2012/2013 show a gain of £36 million together with a potential tax liability?

If DK got takers for his shares at £1 a time I presume that would make setting the "fair value at less than £1 difficult?

Nope. Any "gain" or "loss" would be a Balance sheet transaction. The balance sheet would show the Share Capital line at par (£1) and the Share Premium account would show the difference between par and the price "paid". Bear in mind that companies cannot issue new shares at below par (except in highly specialised, unusual circumstances).

It's all moot anyway - TB converted at par, and DK has proposed selling at par. Personally, I don't think the shares are worth "par", but that's just a personal opinion and entirely irrelevant.

 

[Creaky]

It's possible (from the accounts) that he's received either a salary &/or a pension contribution (capped at the "highest Director emolument" level specified in the accounts). I don't know if TB/ the club have said whether he's drawing a salary in one of their many meetings/briefings or not. I don't consider it any of my business.

It's starting to seem to me that you're more than just curious about these topics. You seem to have an agenda. All of your questions are phrased in a negative rather than neutral way. I'm answering them in a neutral way, but you keep coming back for more. Do you in fact have an agenda here?

None at all other than a genuine curiosity?

The reference to TB not getting a penny back, therefore why should DK, has been raised by a number of posters so it seemed fair to assume that it was known that TB wasn't receiving any payment from the club - it appears that isn't the case and is not a fair argument to make.

If I were in TB's place I most certainly would be taking some form of payment as well as pension contributions if only for tax efficiency purposes.

Likewise if I were in TB's place I would have insisted on majority control of the club if only to ensure that the money I was ploughing into the club wasn't being wasted.

Again putting myself in DK's position I would have been disappointed, as he appears to be, in the way that things have turned out and also like him I would have asked for some form of financial settlement for releasing control of the club to TB let alone as some form of recognition for the years of hard work, time and money put into making sure the club survived.

I am full of admiration for both men and find it difficult to criticise either as I can't say hand on heart that I would have behaved any differently>

 

[drew]

What you've quoted from the accounts answers your question.

Note 27 says that TB converted £40m of loans into equity. Note 28 says that 40m shares were issued at £1 each. As it's a private company, fair value is set by transactions done. Thus by doing this, TB effectively set the "fair value" at £1/share, thus there is no gain/loss.

FWIW, I think there must be some "political" reason why TB was happy to accept only 40m shares for his £40m debt, since by any normal share valuation, the share price one would impute would be, imo, well under 10p a share. I can think of various reasons why TB might want to do that, but I have no desire to speculate on his motives.

However, that decision does allow DK to say, if he wants to, that since TB "paid" £1/share, that's what the shares are worth.

Thought I read somewhere that you can't issue shares for less than their nominal value, which in the case of Albion shares is £1.00. Once issued, they can then be traded at what ever price someone is willing to pay!

 

[Goldstone1976]

Thought I read somewhere that you can't issue shares for less than their nominal value, which in the case of Albion shares is £1.00. Once issued, they can then be traded at what ever price someone is willing to pay!

Yep, see post 46. What you can do is change the par value to, say, 1p. Requires all sorts of resolutions put to an AGM or EGM, but if one owns 90%, then getting them passed wouldn't be too much of a problem. There is no evidence that such a change has ever been considered.

 

[Not Andy Naylor]

Out of interest, why did you use the phrase 'according to Paul Barber' which suggest you think someone at the club may have known about the share issue or possibly that you don't believe PB?

Surely because PB was the only person at the club to make a comment?

 

[sparkie]

I take it from that TB doesn't receive any director's remuneration or pension contribution?

So what if he does ? It will be dwarfed by the + £160 million he has put into the club for the ground and training complex.

 

[Brighton Breezy]

Surely because PB was the only person at the club to make a comment?

Correct. Nothing at all meant by the choice of phrase.

 

[Creaky]

So what if he does ? It will be dwarfed by the + £160 million he has put into the club for the ground and training complex.

Of course it will and as I said in an earlier post I would be taking payment were I in his position.

So no criticism from me if he is - just criticism of those who try to use the argument that TB hasn't taken any of his money out of the club so why should DK - we don't know if that is a valid statement or not.

 

[drew]

Surely because PB was the only person at the club to make a comment?

generous of you.

 

[drew]

Correct. Nothing at all meant by the choice of phrase.

fair enough.

 

[ROSM]

Now I've read a lot about Tony Bloom being altruistic when he offered 400k to Knight for his shares. Maybe one of the experts on here could advise whether, given the shareholdings in place at the time, Bloom actually needed some of those shares in order to gain a majority?

The voting rights after the take over were extremely complex. Archer was classed as a B shareholder and Knight, Pinoock were À holders and Perry was à C holder. If there was a disagreement, it needed the A and C or B and C to carry the vote.

As others like Ray Bloom, Derek Chapman etc came on and Archer left (and many smaller investors like J Town and E David bought shared) I'm not sure how the structure evolved.

What I suppose I'm asking is, Did TB need some of Knights shares? In which case then they were worth whatever he was prepared to pay.

 

[drew]

Now I've read a lot about Tony Bloom being altruistic when he offered 400k to Knight for his shares. Maybe one of the experts on here could advise whether, given the shareholdings in place at the time, Bloom actually needed some of those shares in order to gain a majority?

The voting rights after the take over were extremely complex. Archer was classed as a B shareholder and Knight, Pinoock were À holders and Perry was à C holder. If there was a disagreement, it needed the A and C or B and C to carry the vote.

As others like Ray Bloom, Derek Chapman etc came on and Archer left (and many smaller investors like J Town and E David bought shared) I'm not sure how the structure evolved.

What I suppose I'm asking is, Did TB need some of Knights shares? In which case then they were worth whatever he was prepared to pay.

Maybe, maybe not if it was just a majority that he wanted, ie 51%. But isn't it more likely that, as he alone was invested the money in the stadium that he felt the value of his shareholding should perhaps reflect that. Also, if there were issues between styles of management in the boardroom it may well be that TB felt he needed to minimise DK as far as possible without ousting him completely and alienating fans. In his shoes I would think most people would have done the same, if that is in fact what happened.

 

[hans kraay fan club]

Of course it will and as I said in an earlier post I would be taking payment were I in his position.
.

Why? It would be ludicruous to do so.

Bloom is bankrolling the operating costs of the club, to the tune of £8m per year. It is nonsensical, surely to suggest that those costs would include (made up figure) £250k payment to himself. What would be the point, when he could take no payment, and simply pay IN £250k less? I stand to be corrected if there is some clever accounting point I'm missing, but otherwise any suggestion that Bloom would take anything out (at this time) seems farcical.

 

[sparkie]

Why? It would be ludicruous to do so.

Bloom is bankrolling the operating costs of the club, to the tune of £8m per year. It is nonsensical, surely to suggest that those costs would include (made up figure) £250k payment to himself. What would be the point, when he could take no payment, and simply pay IN £250k less? I stand to be corrected if there is some clever accounting point I'm missing, but otherwise any suggestion that Bloom would take anything out (at this time) seems farcical.

And it would also come out of the FFP allowance.

 

[ROSM]

I don't believe Bloom is taking anything out. I suspect the only Directors being paid are Barber and Perry (with maybe expenses for Sugarman and Godfrey)