Private Equity in RL decision explained

[gingerjon]

Just now, Martyn Sadler said:

You're making assumptions that may not be correct.

When you invest £275 million, you don't agree to a situation where you "can be outvoted at any time".

PE companies go to extreme lengths to protect their investment and they rarely come off second best. The agreements they reach with the companies they invest in are complex and, of course, confidential.

But it's best to remember the old saying that he who pays the piper calls the tune.

I've taken on board everything you've said and the other comments but I'm still not seeing anything in the coverage, even the FT, to say that CVC have the level of complete control that you are suggesting.

I know they're not going to do anything to hurt themselves - it's a reason why I'd run a mile from their involvement - and this could be a semantic argument but I'm far from convinced that Premier Rugby, who fight battle after battle all the time with pretty much everyone and have a massively high opinions of themselves, would just surrender totally to anyone.

[Oxford]

1 hour ago, Oxford said:

Thanks for the rugby union round up Martyn

Is there any well researched data on the success or otherwise of PPE in any sport?

 

 

6 minutes ago, Martyn Sadler said:

PE companies go to extreme lengths to protect their investment and they rarely come off second best. The agreements they reach with the companies they invest in are complex and, of course, confidential.

But it's best to remember the old saying that he who pays the piper calls the tune.

I'll take that as a no, there is no well researched  evidence that PE works, then.

Then again judging by the Total number of ru references & posts on here maybe it's already happened!

[Dave T]

2 hours ago, Martyn Sadler said:

I'm not quite sure what media sources you are referring to, but when you buy a 27% stake in an organisation, when no other shareholder has more than 6%, you control that organisation, by which I mean its commercial operations. It appoints the key management and they report to CVC.

CVC has also taken a 28% stake in the Pro-14 competition.

I think you can count on the two competitions merging at CVC's behest in the near future, regardless of what the national unions or anyone else says.

Everyone I know in rugby union accepts that CVC now calls the shots.

So if 27% is enough to have control, why are they taking 51% of the shares, but 27% of the income in the SL deal?

On a practical example, are you saying that if the PE company wants to cull 5 UK teams and add 5 international teams then the 73% counts for nothing and it has to happen?

[lucky 7]

On 06/02/2021 at 22:20, Damien said:

Carter does sound a little desperate. Any Super League club should be capable for growth in its own right rather than relying on PE and seeing it as the golden ticket. There are progressive clubs with great facilities outside Super League and if any SL club thinks they can't grow without PE then these clubs should be given a chance instead. A quirk of fate of where a club is at a particular moment in time shouldn't be enough for a club to sell part of the game, particularly when that club is everything that Super League shouldn't be.

I am very relieved that the majority of SL clubs had more sense.

I think desperate is an understatement

It's clear he's boxed himself into a corner with the alleged ground improvements and he's probably he's just found out the money needed for them is not there

[Martyn Sadler]

1 hour ago, gingerjon said:

I've taken on board everything you've said and the other comments but I'm still not seeing anything in the coverage, even the FT, to say that CVC have the level of complete control that you are suggesting.

I know they're not going to do anything to hurt themselves - it's a reason why I'd run a mile from their involvement - and this could be a semantic argument but I'm far from convinced that Premier Rugby, who fight battle after battle all the time with pretty much everyone and have a massively high opinions of themselves, would just surrender totally to anyone.

If someone came on board at LPL with that amount of money, I would certainly considering surrendering totally.

I might even comply if they told me never to debate with you on this website, even though it would take a huge chunk out of my life.

For the people who own rugby union clubs, money talks, probably more so than it does in our sport.

[Martyn Sadler]

53 minutes ago, Dave T said:

So if 27% is enough to have control, why are they taking 51% of the shares, but 27% of the income in the SL deal?

They're not doing.

54 minutes ago, Dave T said:

On a practical example, are you saying that if the PE company wants to cull 5 UK teams and add 5 international teams then the 73% counts for nothing and it has to happen?

I don't think CVC would think they could manage growth by cutting teams, so that question almost certainly wouldn't arise.

[The Rocket]

3 hours ago, Martyn Sadler said:

In any company the degree of control is not necessarily a reflection of the proportion of shares owned. In fact it very often isn't.

 

3 hours ago, gingerjon said:

Do you have any other examples?

I  think the Murdoch`s only own  about 40% of News Corp. now.

It certainly is not unheard of for somebody to own less than 50% of shares in that company and still effectively control the running of that company.

A lot of it comes down to being the largest shareholder and also having the biggest say who goes onto the board. A lot of it would come down to forming alliances with other major stakeholders as well of course. A lot easier for them to organise than a multitude of smaller investors forming a voting block.

[Dave T]

On 06/02/2021 at 13:42, Martyn Sadler said:

Just to clarify, it was for 51% control of the company and 27% of the income, meaning that Novalpina would have controlled the management of SLE.

 

1 minute ago, Martyn Sadler said:

They're not doing.

I don't think CVC would think they could manage growth by cutting teams, so that question almost certainly wouldn't arise.

So what is this abstract 51% you refer to? How is that articulated contractually?

Ok, I probably put a bad example out there, but maybe CVC could come in for SL and decide to create a truly Nationwide Rugby comp with League's Northern presence and Unions presence elsewhere - are you saying that can't be prevented?

[Martyn Sadler]

2 minutes ago, Dave T said:

Ok, I probably put a bad example out there, but maybe CVC could come in for SL and decide to create a truly Nationwide Rugby comp with League's Northern presence and Unions presence elsewhere - are you saying that can't be prevented?

It's certainly an interesting thought, but I don't think CVC regard Rugby League as being big enough for their purposes, rightly or wrongly, so it remains an academic question.

[Dave T]

1 minute ago, Martyn Sadler said:

It's certainly an interesting thought, but I don't think CVC regard Rugby League as being big enough for their purposes, rightly or wrongly, so it remains an academic question.

That's not really the point, but it's your prerogative not to answer.

[Martyn Sadler]

48 minutes ago, Dave T said:

That's not really the point, but it's your prerogative not to answer.

Then to answer it, if they wanted to reorganise rugby to bring Rugby League clubs back into the fold, then everything has its price. You can achieve most things if you have enough money to do it.

[Dave T]

1 hour ago, Martyn Sadler said:

Then to answer it, if they wanted to reorganise rugby to bring Rugby League clubs back into the fold, then everything has its price. You can achieve most things if you have enough money to do it.

But they will already have paid it, they would have ownership. 

[Oxford]

4 hours ago, Dave T said:

 

 CVC could come in for SL and decide to create a truly Nationwide Rugby comp with League's Northern presence and Unions presence elsewhere - are you saying that can't be prevented?

It certainly couldn't be prevented though there'd be very little rugby involved but that may be made up for by all the clapping!

[Dave T]

2 hours ago, Oxford said:

It certainly couldn't be prevented though there'd be very little rugby involved but that may be made up for by all the clapping!

Well that's what I'm asking, can the company with a 27% stake drive through a change like this if the 73% disagree with it? 

[The Rocket]

1 hour ago, Dave T said:

Well that's what I'm asking, can the company with a 27% stake drive through a change like this if the 73% disagree with it? 

No, certainly not if 73% disagree, even if they got 51% a radical change in direction like that would probably require near unanimous support otherwise it would never work.

Any chance of CVC convincing rugby union clubs becoming Rugby League clubs? a far more attractive proposition.

[Oxford]

6 hours ago, Dave T said:

Well that's what I'm asking, can the company with a 27% stake drive through a change like this if the 73% disagree with it? 

I think asset stripping would be my first worry but I was struck by this idea not coming up for discussion. I know RL journalists are often far too fond of bashing the game, it's admininistraion and those who prop up the game at club level, but this was fodder for year one journalism school. And which assets would be deemed okay for union take over? And what does it say that this wasn't one of the primary concerns in all this?  What does that tell all of us?

 

[Oxford]

 

13 hours ago, The Rocket said:

A lot easier for them to organise than a multitude of smaller investors forming a voting block.

Well if there were only five smaller investors but all of them were RL fans we couldn't get them to agree to share the same air!

[Dave T]

9 hours ago, The Rocket said:

No, certainly not if 73% disagree, even if they got 51% a radical change in direction like that would probably require near unanimous support otherwise it would never work.

Any chance of CVC convincing rugby union clubs becoming Rugby League clubs? a far more attractive proposition.

It's what I'm trying to understand. In my simple head my thought around the 27% is that it means that if they want to push major change through, they probably only need the support of 4 or 5 clubs rather than the current situation that may require 7 clubs and holds us back. I just assumed they would do the sums that is likely to give them enough power to influence, but the clubs hold enough power so there does need to be support for the proposals. 

In RU it was apparently £275m for 51% or £200m for the 27%.

[Taniwha Warriors]

1 hour ago, Dave T said:

It's what I'm trying to understand. In my simple head my thought around the 27% is that it means that if they want to push major change through, they probably only need the support of 4 or 5 clubs rather than the current situation that may require 7 clubs and holds us back. I just assumed they would do the sums that is likely to give them enough power to influence, but the clubs hold enough power so there does need to be support for the proposals. 

In RU it was apparently £275m for 51% or £200m for the 27%.

But the CVC Six nation's deal wouldn't give them any power to change or choose which teams to participate without the national unions agreeing. And I believe the same goes for Pro 14 and Premiership RU.

[Dave T]

28 minutes ago, Taniwha Warriors said:

But the CVC Six nation's deal wouldn't give them any power to change or choose which teams to participate without the national unions agreeing. And I believe the same goes for Pro 14 and Premiership RU.

Yes, this is my challenge. Apparently they have a 27% stake but full control. That is Martyn's view. I'm struggling to see how that works.

[Derwent]

3 hours ago, Dave T said:

Yes, this is my challenge. Apparently they have a 27% stake but full control. That is Martyn's view. I'm struggling to see how that works.

I am not saying Martyn is right on this but you must understand that 27% of all shares doesn't necessarily mean they only have 27% of voting rights. It depends on how the shares are structured. As an example, there could be A, B & C category shares.

A shares have full voting rights e.g. 1 share = 1 vote, B shares have diluted voting rights e.g. 1 share = 0.1 vote, C shares have no voting rights and are dividend shares only.

So if there were 100 shares in the company and say 40 were A shares, 40 were B shares and 20 were C shares, then if a company held 27 A shares they'd have full control as that would be a majority of votes. They'd only have 27% of total shares issued but they'd have 60% of the voting rights.

I don't know if that is the case here but it's not an unusual scenario.

[Dave T]

10 minutes ago, Derwent said:

I am not saying Martyn is right on this but you must understand that 27% of all shares doesn't necessarily mean they only have 27% of voting rights. It depends on how the shares are structured. As an example, there could be A, B & C category shares.

A shares have full voting rights e.g. 1 share = 1 vote, B shares have diluted voting rights e.g. 1 share = 0.1 vote, C shares have no voting rights and are dividend shares only.

So if there were 100 shares in the company and say 40 were A shares, 40 were B shares and 20 were C shares, then if a company held 27 A shares they'd have full control as that would be a majority of votes. They'd only have 27% of total shares issued but they'd have 60% of the voting rights.

I don't know if that is the case here but it's not an unusual scenario.

Thanks, it is this kind detail I am referring to, I'm not knowledgeable about this level of detail, but I have an awareness of what you refer to. 

I think I asked earlier about voting rights, as we know that the RFL have special rights on certain aspects of the comp, clubs others. In one of the articles about RU it states that they had agreed protections for certain things. 

So I think it is challenging to just say that the investor has full control - it is important to understand what exactly they have control of. 

[steve oates]

On 08/02/2021 at 09:33, Martyn Sadler said:

When you buy a 27% stake in an organisation, when no other shareholder has more than 6%, you control that organisation, by which I mean its commercial operations. It appoints the key management and they report to CVC.

It's hard to get one's head around this, but this seems a clue.

As I understand it Superleague is hamstrung at times by one club one vote with a view to reaching a concensus before taking action, and moving forward. If as people keep intimating the SL clubs can't agree on anything then bringing in an investor who has a "controlling stake" would mean the game could move forward.

Notwitstanding the controlling party may of course make some bad decisions, but if these private equity people are good then why not?

 

[Martyn Sadler]

6 hours ago, Dave T said:

Yes, this is my challenge. Apparently they have a 27% stake but full control. That is Martyn's view. I'm struggling to see how that works.

The precise naure of the control depends on the agreement they entered into when investing their £275 million.

There may be a clause that says that money will be repayable if certain things happen, such as the clubs ganging up on the PE investor.

That's unlikely, because the nature of the deal is that all parties want the pot to grow if they are all to be successful.

[Oxford]

So what was the actual sum of money?