The life cycle of a deal: the takeover of Liverpool Football Club

corporate finance

Every deal has to go through a number of stages before it can complete, and
each stage presents a different hurdle the transaction can fall at. We explore
the sale of Liverpool Football Club to US tycoons George Gillett and Tom Hicks
as an example of how the process works, and show how deals can move in
unexpected directions along the way.

Making the decision to sell

For some companies, the decision to sell is a straightforward one. It may
simply be an exit for private equity investors or a way to help grow the
business. For Liverpool FC, the sale arose out of the planned move to a new
stadium. The club was struggling to raise the required £200m through borrowing,
so external investment was needed. But the interested parties seemed more intent
on acquiring the entire club rather than a minority shareholding.

Hiring an adviser

Once you have decided to sell, it is vital to get expert advice as soon as
possible. Advisers have the contacts and experience to make the process go as
smoothly as possible and to extract the best value for the seller. Liverpool
appointed PricewaterhouseCoopers in December 2005, with corporate finance
partner Colin Gillespie heading up the project.

Scouting out investors

With such a strong global brand presence, Liverpool FC did not have the
toughest of challenges finding potential buyers. ‘Over the last 15 months we
have spoken to about 30 parties and had enquiries from all over the globe,’ says
Gillespie. Interest was stirred throughout Europe, Canada and South America, but
more significantly, the Middle East and the US.

Weeding out the casual interest

Essentially a job for your advisers, the list of potential buyers has to be
whittled down to those with the will and backing to pull a deal off.

‘Only a handful of the interested parties were serious contenders,’ says
Gillespie. ‘Some went quite quickly. Either they were not too credible or not
aware of the scale of investment needed. With stadium costs estimated at £200m
and offers for equity expected to be north of £125m, it is quite a big
investment and you also have the risks associated with a new construction.’

Making your intentions public

At some stage in this process, especially with a listed company, you have to
tell your shareholders that you are in discussion about a potential sale. In
Liverpool’s case this was prompted not only by the takeover code but also by
comments in the press from potential bidder Juan Villalonga.

Selecting preferred bidders

There can be several preferred bidders, with preference going to those
companies and proposals most in line with the aims of the selling company. Price
was a lower priority for Liverpool chairman and majority shareholder David
Moores than a safe pair of hands and commitment to the new stadium and on-pitch
success. Of the interested parties, Dubai International Capital (DIC) best
fitted the bill and it was named preferred bidder in December 2006.

Due diligence

Preferred bidder status gave DIC access to Liverpool’s accounts for the
process of due diligence. This gave DIC a more accurate picture of the financial
state of the club, to help it formulate an offer to put to the board. However,
the takeover code means the books must also be opened to others who request
access. Even without preferred bidder status, potential buyers are still able to
access the same information and put together a bid, which was exactly what US
sports and media mogul Gillett did.


This is the time when deals can be made or broken and there are 1,001 ways in
which plans can sour. Every deal is unique and having an expert on hand is
essential in ensuring a preferred bidder comes through with the expected offer.

With Liverpool, things did not go exactly to plan. Doubts were raised over
DIC’s commitment to the club after an internal paper was leaked that talked of a
seven or eight year exit plan. DIC allayed these concerns, but the leak, and
continued media speculation over whether DIC would actually make an offer,
encouraged Gillett to bring in fellow sports businessman Tom Hicks and table a

By February 2007, Moores and chief executive Rick Parry faced a dilemma. With
another proposal on the table, they went back to DIC to ask for 24 hours to
think the bids through. The next they knew, DIC had withdrawn from the
negotiations, leaving the way open for the US pair.

‘The chairman never had to make a choice,’ says Gillespie. ‘DIC had a good
chance of success but it could be that the fear of failure got to them.’

Offer announcement

On 6 February, Gillett and Hicks published their offer announcement document,
a 20-page summary of the terms and a notification to shareholders that the more
comprehensive offer document would be coming their way in the next few days.
Gillespie summarises this stage as ensuring there is not a false market for the

Offer document

On 19 February the official offer document was released. The 57-page
publication contained further disclosures about the club, the bidding parties
and the terms of the deal. It also included the form of acceptance for
shareholders to fill in and return so their vote on the bid could be counted. In
monetary terms, the offer for Liverpool was £5,000 per share.

Acceptance of offer

The takeover code lays down that an offer has to remain open for at least 21
days, so the earliest the Liverpool deal can be completed is 12 March. If
Gillett and Hicks get 75% of the votes at this time, the offer becomes
unconditional as to acceptances. Once other conditions set out in the offer
document are met, the offer becomes wholly unconditional. If the bidding party
get 90% of acceptances, it can enforce a share buyback, enabling it to gain
complete control the club.

Transfer of ownership

Once the deal has been accepted, the club will effectively become Gillett and
Hick’s. The transfer of funds can happen almost immediately following
acceptance, although shareholders may have to wait a few more days before they
can cash their cheques. For Gillett and Hicks, this is when the hard work really

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