Wednesday, July 6, 2022

Chelsea sale enters home stretch with Todd Boehly confident despite rogue bid from Jim Ratcliffe

It’s a crucial week for the Chelsea sale with Todd Boehly’s consortium already into a five-day period of exclusivity to try and sign a purchase agreement. This is more than just a formality, but after being named as the preferred bidder on Friday the minority owner of Major League Baseball’s Los Angeles Dodgers is now favorite to take over one of the Big Six Premier League clubs from Roman Abramovich.

Boehly is leading the talks and has Clearlake Capital co-founder Behdad Eghbali, Swiss billionaire Hansjorg Wyss, Dodgers part-chair Mark Walter and property developer Jonathan Goldstein (CEO of Cain International, which Boehly part owns) among those in his consortium.

The group is confident of completing a sale and has felt it would be named as the preferred bidder for weeks. But there was a late twist on Friday after Nice owner Sir Jim Ratcliffe entered the race. The British billionaire, who now lives in Monaco, bypassed the process with an unexpected eleventh-hour $5.32 billion bid.

Ratcliffe’s offer is genuine — and he also explored buying Chelsea in 2019 — but he can’t formally progress his bid until the period of exclusivity expires for Boehly group’s.

So what happens next?

Boehly will lead talks with Chelsea to try and finalize a purchase agreement. If successful, the American will only hold a minority stake with private investment firm Clearlake Capital the majority owner. At Chelsea’s request, they have guaranteed they will remain at the club until at least 2032.

Boehly will assume operational control on a day-to-day basis but Clearlake co-founder Behdad Eghbali will be an active director. He has already been a prominent voice on both the football strategy and Stamford Bridge redevelopment plans.

A period of exclusivity doesn’t guarantee a sale. Neither party is obligated to follow through. But it does provide the Boehly group with an opportunity to undertake any further due diligence and, most importantly, get clarity on how almost $2 billion ($1.93 billion, to be exact) in loans owed to Abramovich will be dealt with.

That’s the biggest sticking point at the moment. Abramovich originally promised to write off the debt, but due to the sanctions against him he can’t legally do so right now. He must thus agree a deal with the U.K. government to convert it into equity. This is the most logical solution, and one the government seems open to, even if it weakens the share value of the club. Otherwise, the Boehly group must take on the debt at book value.

In the past few days, Chelsea have warmed to this approach. The club would ideally like to restructure the deal to pay off the debt from its parent company Fordstam Limited to Jersey-based Camberley International Investments — believed to be linked to if not controlled by Abramovich. (And should there be no link, and if Chelsea successfully prove this, the government would still rightly ask why the debt is being repaid there).

The key point is Fordstam can’t pay anything to Arbramovich (or any affiliated company) under the sanctions, which makes the idea hugely problematic. If they attempt this, the government could just block the sale. The plan is essentially reliant on Camberley either being untouchable by the government, Chelsea arguing a legal loophole or the debt just remaining in limbo until a payment can be made.

If this approach is taken, the Boehly group would pay exactly same amount and then see $2 billion taken from it to “settle” the loan in full, or they would withhold that amount until a point they could legally repay Abramovich. In essence, it’s the equivalent of buying a house worth $5 billion where the previous owner has an outstanding $2 billion mortgage which you take over.

The most likely scenario is the Boehly group will be saddled with a pending debt with it unclear whether Arbramovich can or can’t one day write it off. With that looming, they may have to borrow more money to fund club spending. And, according to finance expert Kieran Maguire, if Abramovich’s debt takes priority then interest rates charged by lenders could also be impacted.

The Boehly group is also keen to clarify precisely where the rest of the sale proceeds will go. Abramovich has asked for at least $3.15 billion from the sale funds to be donated to “victims of the war in Ukraine,” but no further specifics have been provided. It is likely Chelsea will have to start a new charity or foundation. This could add time and risk a period where the funds in question are frozen.

Former Arsenal vice-chairman David Dein has written to politicians asking for $940 million from the sale to be invested back into grassroots football in the United Kingdom. But government sources told CBS Sports they are “cautious of taking this route” since they don’t want to be seen to directly benefit from the sale. While these issues get resolved, it is possible the period of exclusivity could be extended.

The bottom line is Chelsea desperately need a sale by May 31, before their government-issued special license expires. Otherwise, the club risks not being able to meet essential outgoings and could incur a disrupted offseason or far worse. The absolute latest deadline is surely June 8, when Premier League meet ahead of the 2022-23 season. If Chelsea are license-less by then, they won’t be able to compete.

The summer transfer window then opens on June 10 and the Boehly group will clearly want to be in control by then. The ongoing sale saga has already prompted Antonio Rudiger to join Real Madrid while Andreas Christensen has reportedly agreed a five-year deal with Barcelona.

Marcos Alonso and Cesar Azpilicueta could yet join Rudiger at Camp Nou, although Alonso is prepared to wait for the new owner to come in before determining his future.

Chelsea manager Thomas Tuchel is clearly concerned about a player exodus and desperate to hang on to Real Madrid target Reece James as well as offer Mason Mount improved terms.

As a result, the Boehly group is well aware its first task will be to renegotiate with key players in order to limit damage from takeover-related uncertainty. If successful, they will work with Tuchel, and Chelsea women’s manager Emma Hayes, to determine the most urgent priorities as their first and most pressing task.

Does a purchase agreement guarantee a sale?

A purchase agreement doesn’t quite guarantee a sale but it comes pretty close. It binds both parties into an agreement, at which point the Boehly group would most likely transfer a non-refundable deposit. They have already demonstrated proof of funds.

From there, there are still some further steps. Chelsea need to get the deal signed off by the government, who must ensure no funds go to Abramovich. That means the sale would be blocked if Fordstam attempted to pay Camberley back the $2 billion in loans, even if it’s not entirely clear who controls the latter.

The government will also want reassurances Clearlake Capital have no Russian investors involved although that particular check is a mere formality. And the Boehly bid must pass the Premier League’s Owners’ and Directors’ Test — something that delayed Newcastle United’s Saudi-led takeover by 18 months. The test not only scrutinizes all listed directors but assesses three-year business plans.

Once a prospective new owner passes it, they can transfer the balance of funds at which point the takeover is complete.

So could the British government or Premier League delay things?

Culture Secretary Nadine Dorries has already said Chelsea are on “borrowed time.” And sources at the Department for Digital, Culture, Media and Sport (DCMS) told CBS Sports there are no plans to extend Chelsea’s special license beyond May 31, albeit they do have the power to do so. In fact, the government can tighten, relax or even revoke the special license at any point. That adds pressure to complete a quick sale and means acquisition isn’t entirely on Chelsea’s terms.

But the government has no say (at least not officially) over who actually owns Chelsea, providing no one involved is under sanctions. The DCMS have constantly reiterated this throughout the process.

“The government has no role in establishing a preferred bidder for Chelsea Football Club,” a DCMS statement read. “Assessments of owners and due diligence are a matter for the club and the Premier League, not the government. Our role is to consider an application for an amended license that authorizes a sale of the club when it comes forward with a preferred bidder.”

Ultimately, the government is happy with the Boehly group. Plus the involvement of Tory peer Danny Finkelstein and former chancellor of the exchequer George Osbourne means the bid has strong government ties. Finkelstein, who is also a columnist for The Times newspaper, will become a non-executive board member if the Boehly group is successful.

All this means the only government-initiated delay (assuming they don’t block the sale over the handling of the debt owed to Abramovich) is a logistical one. This is because they may have to create two licenses – one to sign off the sale and a second one to actually release the funds. Creating two licenses won’t take any extra time unless, at the time of sale, it remains unclear where the funds are going, DCMS sources told CBS Sports.

As for the Premier League, they have “soft vetted” the Boehly group’s listed directors and now assessed their business plan. In doing so, they also sought reassurances as to the share split and identity of Clearlake’s investors. This was not an atypical request. That means the Boehly group has effectively if not formally already passed.

But after Newcastle’s lengthy and controversial takeover saga, the EPL must be seen to carry things out by the book. A source told CBS Sports, they expect to clear the Boehly bid within seven days of the Test officially starting.

The failed Sir Martin Broughton and Steve Pagliuca bids (to date) would have probably taken a bit more time. Broughton’s bid had Philadelphia 76ers owners Josh Harris and David Blitzer involved, and the pair also have shares in Crystal Palace. Meanwhile, Boston Celtics co-owner Pagliuca owns 55% of Serie A side Atalanta. Palace wouldn’t have stood in the way of Harris and Blitzer buying Chelsea, but they would still have had to offload their shares first, according to CBS Sports soccer reporter James Benge. 

And Pagliuca was asked to provide written confirmation of his Atalanta plans prior to being cleared but hadn’t done so at the point of being ruled out. A source told CBS Sports that Pagliuca is still in dialogue with Raine Group but was not only ranked behind Boehly, but Broughton, too. Broughton’s bid impressed Chelsea and he, much like Ratcliffe, is on “standby” in case the Boehly group don’t succeed.

gettyimages-105990470.jpg

Sir Martin Broughton was appointed Liverpool chairman in 2010 and tasked with overseeing the sale to current owners Fenway Sports Group. Getty Images

What are Ratcliffe’s chances?

Ratcliffe’s bid is certainly a “rogue” one and is not at this stage being prioritized by Chelsea, even though the 69-year-old met with Chelsea chairman Bruce Buck prior to tabling his offer.

A senior Chelsea source has also denied suggestions Ratcliffe’s dramatic late offer stopped Raine Group publicly announcing Boehly as the preferred bidder. Instead, they claim the plan was always to refrain from any official comment until an agreement is further advanced.

Ratcliffe owns the petrochemicals giant INEOS, and certainly has the financial means to buy Chelsea outright simply by extending corporate credit lines to fund the purchase. That’s the fastest way to a sale for him unless he seeks part-capital from failed suitors with capital in place.

Ratcliffe will pay $3.13 billion for Chelsea and has pledged to invest $2.19 billion over a 10-year period. He also plans to extend Stamford Bridge’s 41,837 capacity to 60,000. But Boehly bid sources confirmed that Ratcliffe’s all-in $5.32 billion offer is actually slightly lower than their own when one includes the sale price, charitable donation and investment into the football club post-acquisition.

gettyimages-1239153464-2.jpg

The Boehly group’s plans to redevelopment Stamford Bridge are the most in-depth of any suitor.  Getty Images

There is no doubt Ratcliffe’s offer took the Boehly group by surprise but they remain unconcerned by it as this stage, other than knowing Chelsea could use it as leverage.

Don’t be fooled by the delays (so often lamented on social media) or frustrations from certain bidders. The sale process has actually been surprisingly smooth for one so incredibly unorthodox. And yet the number of interested parties has given Chelsea the chance to pit suitors against each other, move the goal posts at times and maintain a “hard sell” demeanor, even though Abramovich (let’s not forget) is being forced to sell.

With that said, it’s also important to stress, Ratcliffe isn’t in the same “race” as Boehly because he didn’t formally enter the official tender. In fact, he went straight to Chelsea with his offer, much to the bemusement of Raine Group.

Ratcliffe did register interest in Chelsea in late March but then chose not to proceed. He has since been watching the process from afar and felt the niggling delays and debate over valuation presented a window of opportunity. But Buck made it clear to him that Chelsea won’t abandon their process, which means Ratcliffe can only really succeed if Boehly and Chelsea fail to agree terms.

In the meantime, Ratcliffe plans to further engage with fan groups this week having already met with the Chelsea Supporters’ Trust. He is in London for a few days but won’t be at Stamford Bridge for Saturday’s Premier League fixture with Wolves since it clashes with Nice’s French Cup final against Nantes.

Ratcliffe’s main challenge for now is he can’t carry out due diligence while the Boehly group is in exclusive talks. He may claim he can complete a deal fast — and he’s right in the sense he has the capital available — but he has no locked numbers yet behind the his redevelopment plan. Meanwhile, the Boehly bid has an impressive roadmap and both Goldstein and Abramovich’s own project manager for his abandoned redevelopment, David Hickey, on board.

And Ratcliffe will also, like Pagliuca was asked to, have to clarify his plans for Nice. He has already he said he won’t give up or reduce his stake in the club, something you’d expect prior to even knowing whether he’s a contender. But he’ll need to put this in writing to Chelsea and the Premier League. And if he’s intent on remaining Nice owner, that means should the sides meet in European competition one of them would have forfeit.

gettyimages-1317123158.jpg

Lewis Hamilton was part of the failed Broughton consortium. Getty Images

Ratcliffe is hoping his “British bid for a British club” pitch will win over the government. And it’s not impossible with that in mind he’ll bring on board Lewis Hamilton, especially since INEOS currently hold a 33% stake in his Mercedes team. The seven-time Formula One champion was part of the failed Broughton bid and remains open to investing in Chelsea.

But Ratcliffe must be cautious, since Broughton was criticized by one Raine source for the “celebritization of the sale process” and trying to turn it into a popularity contest. It is currently unclear what involvement Raine would have if Chelsea did proceed with Ratcliffe.

In short, the most likely Chelsea owner remains the Boehly-led consortium. Plus, it isn’t a case of choosing directly between them and Ratcliffe. Chelsea will see if they can finalize deal with the former first. If they can’t, then Ratcliffe may be considered but still probably not before Broughton or Pagliuca.

But there remains a commitment and confidence from Boehly and Chelsea that the period of exclusivity will lead to a sale providing the handling of Abramovich’s loans can be resolved. Although there are plenty of other points to discuss, there is nothing else outstanding that should delay a sale beyond May 31.

Related articles

Comments

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Share article

Latest articles

Newsletter

Subscribe to stay updated.