The Daily Telegraph is reporting today that Mike Ashley’s Â£134M takeover of Newcastle United was recommended by the club’s previous Board of Directors only after he promised to invest in the team.
Documents detailing Ashley’s bid for the club suggest Freddy Shepherd only backed Ashley’s bid after becoming sure they offeredÂ “the best possible opportunity for the club to flourish in the future”.
Let’s take a look at this important story but thisÂ may be nothing more than a media over-reaction to sell newspapers and theÂ conclusion we reach is very simple.
In fact we are pleasedÂ Ashley and Mort seem to be running the company professionally.Â Please read onÂ Â
Newcastle Owner Mike Ashley
On June 7, in a letter to shareholders Freddy Shepherd, on behalf of the then Newcastle board wrote:
“The Newcastle United board believes that a critical factor in improving the performance of the club on the pitch is Newcastle’s ability to invest in its player squad.â€”The company’s publicly listed status has placed certain constraints on its ability to invest in players, notwithstanding the fact that over the last five years the company has spent approximately Â£104M on player acquisitions.â€
“This has become more acute in recent years as football clubs have significantly increased the amount they are able to invest in their squads, with a resulting escalation in the level of transfer fees being paid for players, and in particular highly rated players.â€
“The offer from SJHL is at a level which fully reflects both the performance of Newcastle United and its prospects and ambitions for the future, and the board believes SJHL and Mike Ashley will be excellent custodians of Newcastle United’s heritage and will provide the best possible opportunity for the club to flourish in the future.”
The offer document submitted by Ashley is 52 pages long and when reviewed for references to investment in the club this is what it says:
“Mike Ashley has funds to make available, through SJHL, for investment in Newcastle.
However, before finalizing the amount he is willing to invest, Mike Ashley will want to undertake a thorough strategic review, including its existing infrastructure, contractual arrangements, playing staff and financial position.”
It’s smart business not to say exactly how much you are willing to invest before you take a club over – and theÂ review has now been completed.Â New Newcastle Chairman Mort has indicated the reduction in the club’s Â£80M debt is a priority and he has indicated:
“The debt’s too high and it’s something we’ll look to address quickly.”
Good we agree with that – it’s too high, but not a good reason not to invest in the transfer market this summer and back Manager Allardcyce.
Ashley should not have been surprised at all by the debt at Newcastle as the most recent set of accounts, for the six months to December 2006, show Newcastle’s net debts to be Â£77M. On this site several months ago readers were quoting our debt at Â£80M before any takeover activity.
This should have all come out during the due diligence all companies are required to do before acquiring any other company. It’s at their peril if they don’t do this thoroughly because due diligence is meant to stop things like this happening (being surprised how more the debt it once you have acquired a company). Those with business experience on acqusitions and mergers will know this procedure is very important.
The above actions show Mike Ashley and his people will run the club much more professionally than in the past – and that’s good. If Ashley is still willing to invest say then Â£25M in transfers for Sam – and Sam is OK with that – everything in the garden will be rosy. Given the accuracy of newspaper reports on Newcastle over the last few weeks there may be no such Â£10M restriction on Big Sam. A savvy business action now to reduce the debt may be to reduce the transfer fund this summer – but not to the levels suuggested in the media.
As long as sufficient funds are made available to Big Sam and he is happy with what he gets we don’t see any problem at all.Â But reducing the transfer fund to levels of Â£10M is too low and wouldÂ be a concern if true. Â Good executive management of a football club would suggest that sufficient transfer funds be made available now – whatever the debt.
Comments on this important story are very welcome. Just a reminder to keep comments civil with decent language