via The Telegraph (AP)
“Make eye contact, Tom and give us the real scoop. Are you in or not?”
The growing sense out of Anfield is that the American owners of Liverpool might be struggling to keep hold of the club. There are many worrying signs but chief amongst them is banks are increasingly cagey in giving out the full loan to finance the new stadium, relying more on a piecemeal approach. It looks increasingly likely that the financing for the stadium will be put on hold till 2009.
The owners have already reneged on their original promise to keep Liverpool from becoming another Man Utd and as in the case of the Glazers, rather than relying on their own assets, loans are now needed to finance Liverpool’s buyout burdening it with debt. The huge interest repayments will eat a significant chunk of the revenues. More alarmingly, Hicks seems to have developed cold feet on the whole Liverpool financing ordeal and is seeking a takeover of his share.
For Hicks, Liverpool is another cog in the wheel. Soccerblog has documented his hard nosed business dealings in some detail. He is a legendary leveraged buyout specialist, buying piecemeal and then sell high. In the 90’s, Hicks juggled a myriad of business ventures with his venture capital firm. He is a risk taker, a gambler, for other people’s money, and he has a solid track record.
These however are changing times, the economic situation in the US has turned precarious with a jittery and volatile stock market reacting to the sub prime mortgage meltdown and the weakening dollar. Houses are being re-possessed as loan defaults escalate and banks investing in mortgage based securities are reporting massive losses. Morgan Stanley reported its first quarterly loss in 72 years and Bear Stearns is expected to follow suit. Citibank and Merrill Lynch’s CEO recently resigned after billions of dollars in write downs following losses in the real estate market. In a worrying sign, analysts have not yet been able to gauge the extent of the damage but it is widely expected that the worst is yet to come. The Feds lowered the interest rate to shock the market back but it had the opposite effect as the reduction was considered paltry.
Hicks company, Hicks Holdings also owns the Texas Rangers, the Dallas Stars and a 50 percent stake in Liverpool Football Club. It also has a real estate unit and a business pursuing corporate acquisitions and real estate development in Argentina.
In this context, since buying out Liverpool with George Gillette in February, Tom Hicks has teamed up with Gatehouse Capital to develop hotels and luxury condominiums in Dallas and Los Angeles. He has also bought a 40% stake in Safemed, a company that optimizes clinical decisions based on a number of patient attributes.
In June 2007, Hicks entered the SPAC market. Special purpose acquisition companies are blank check or shell companies which raise money from the public with the sole mission of buying a company — whose identity is unknown at the time of the I.P.O. The deal making prowess of the manager is central to the perceived success of the SPAC. Hicks Investments, the SPAC started by Tom Hicks looks to raise $400m. He has since raised $552m but is still looking for a company to buyout. As per the IPO prospectus he has another year and a half to do this otherwise the SPAC will be liquidated and the money returned. SPACs are more transparent than most other investment strategies but the downside is that they ask investors to buy their stock on the strength of a management team, rather than a solid investment plan. They ask investors to provide them funds to invest in a company that has not yet been chosen. The risks therefore are considerable and not for the faint hearted. So far SPAC’s have not been particularly successful in buying out companies.
Undoubtedly Tom Hicks is a successful deal maker and most of his investments have paid off but in the present uncertain financial state of the global markets and the recent risky investments that he has made, it is natural for banks to take a harder look at Liverpool’s owners and decide whether they are doing the wise thing by loaning the money, to owners who might their own cash flow problems. Contrast this with Randy Lerner’s low key buyout of Aston Villa where his own money guarantees a far more secure future.