A Rights Issue Is Top Priority for the Arsenal Board

(Photo by Ryan Pierse/Getty Images)

This week could be a monumental week in the history of the ownership of Arsenal Football Club.

At a board meeting this week, the directors will discuss, amongst other matter the option of raising additional capital.

Alisher Usmanov has sent a letter to the club formally offering to under-write a £100 million rights issue.  Such a move cannot be ignored by the directors as it would be a dereliction of their duties. What Usmanov is saying is that any shareholder who does not wish to take up his or her rights, he will buy those shares.

The purpose of the rights issue is to free-up £100 million of the club's current liabilities, the money is needed to payoff the loan of the Highbury Square development, and would result in lower interest payments being incurred by Arsenal.  Through a rights issue the club will receive £100 million.

The club currently has 62,217 shares.  The shareholding is as follows:

Stan Kroenke                                                   17,613             28.3%

Alisher Usmanov                                               15,554             25.0%

Danny Fizsman                                                 10,020             16.1%

Lady Nina Bracewell-Smith                                   9,893             15.9%

Others                                                               9,137

The Arsenal shares would be valued at £8,500 each, so to raise £100 million, Arsenal launch a 6:1 rights issue, meaning that for every six shares you currently hold, you will be entitled to one new share which will cost you £8,500. 

This is the crux of the matter.  For Danny Fiszman, who recently sold shares to Stan Kroenke, he would need to invest in excess of £14 million as would Lady Nina Bracewell-Smith. I doubt if either would wish to invest further sums into the club.  All small shareholders would have to find £8,500 for every six shares they own. 

This would leave only Stan Kroenke and Alisher Usmanov with the financial muscle to take up their rights and the rights of other shareholders who have elected not taken up the offer. Assuming an outside bidder didn't emerge.

The board’s fear is that this will allow Usmanov to acquire at least 28 percent of the club, if Kroenke only took up his own rights, then Usmanov will have 31 percent of the club and will be entitled to a seat on the board.  This would be too much to stomach for certain members of the board.

If Usmanov gains a 30 percent share of the club then he would required by current stock market rules to make an offer for the remaining shares—in other words, he would have to make a de facto take over bid.

A rights issue is the only way the club will reduce its debts in the short term and release much needed capital for Arsene Wenger to invest further in playing staff. 

It is time the board stopped fiddling while the club sinks further below the competition, they are mere custodians of the club and should act its best interests, rather than their own.

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