Tuesday, 9 June 2009

Opening A Door, Closing A Window

West Ham's new owners said yesterday that they had taken control at Upton Park to protect the club from the imminent threat of becoming the first in the Premier League to enter administration. The CB Holding consortium, which comprises the outgoing chairman Bjorgolfur Gudmundsson's creditors, took over on the eve of a court hearing in Iceland today in which Gudmundsson was likely to have been stripped of the protection against bankruptcy that had been in place since March.

The Independent states that one company in the new consortium, which will command a seat on the West Ham board – Iceland's MP Bank – was pushing to bankrupt Gudmundsson, a move which, under league rules, would have seen the Hammers deducted nine points and placed at severe risk of relegation to the Championship next spring. But the largest creditor, Straumur-Burdaras Investment Bank – under Icelandic government control having gone into administration itself – has helped broker a transfer of the club to the creditors.

Georg Andersen, head of corporate communications, said Straumur had decided to take the club over "mainly to protect our interests", in a move which had been under preparation for weeks. "The former owners of West Ham were going out of moratorium, which meant it was most likely they would go into bankruptcy, and under league rules the club would be penalised with a points reduction," he said. "The value of the asset would have decreased enormously. As a bank, we would have preferred the owners to keep the club and had success with the whole thing, but that is not the case. We [had] to do something."

Speaking in the Telegraph, Anderson insisted that West Ham United were a 'trophy asset' that had to be protected. "We simply had to do this, we are not taking over a football club to have some fun," he said. "Straumur, as a rule, is not in the business of running football clubs. We had to do this to protect the club from financial problems because of Hansa's problems. We did not have any other option. That being said, if we are going to do it then we are going to do it properly."

Andersen said the "for sale signs" put up by Gudmundsson will come down and he expected Straumur to remain in control for the foreseeable future. "We realised that the way the markets are right now there is no way that the club could be sold for what we believe it is worth," Andersen explained, before admitting there had been "two or three interested parties" in buying the club from Gudmundsson. "Nothing has come of it. We did not have the ownership or control until today [Monday] but as major creditors we have been informed as to what has been going on."

Nevertheless if a buyer does come forward, he will be listened to but only if he offers what the new owners regard as a fair price, thought to be at least £150 million. "We will work with the present management and the plan that has been put in place by [chief executive] Scott Duxbury and Gianfranco Zola for the next two or three years and then try and see if there is an owner who is capable of taking the club forward," Andersen said. "We believe in the plan and we believe that progress will continue to be made. We want to continue along the path that has been started."

Straumur insisted West Ham were not in the de facto ownership of the Icelandic nation, owing to the fact the Reykjavik government had taken control of the bank. "We have not been nationalised. We are preparing a restructuring plan which in three to four months should see us re-emerge as an independent asset management company," Andersson said. It is understood some senior executives at Straumur are disgruntled that MP Bank has, as they see it, used Gudmundsson's financial misfortune to increase its own profile in Iceland by making high profile calls for him to be left high and dry. No one at MP Bank could be reached yesterday.

It is an embarrassing fall from grace for Gudmundsson, who stepped down as chairman yesterday and who has lost an estimated £500 million because of the effects of the credit crunch. He bought the club for £85 million, taking on debt of around £22 million, three years ago but his efforts to sell West Ham have been complicated by the level of debt – currently around £75 million including a minimum of £21 million rising to £27 million after the Carlos Tévez affair. A payment to the Yorkshire club is due on July 1.

Gudmundsson had hoped that his takeover would lift West Ham to Champions League contention, but the club paid a heavy price for overspending on transfers and wages. He was given until today to sell West Ham and other assets to repay money he owed to Straumur — about £80 million — and his other creditors. The club needed to be sold for a price in excess of £100 million to raise enough money to repay the debt, but none of the informal offers he received was high enough.

It left Straumur, a former bank in the process of being restructured to become an asset management company, with no choice but to take control. Straumur holds a 70 per cent stake in CB Holding, with the remainder owned by Byr/MP Banki and Landsbanki, which together are owed about £16 million by Gudmundsson. Straumur has creditors of its own who may also force an early sale of the club. It claims that Gudmundsson will not receive a share of the club’s future sale, a deal that he had tried to negotiate.

When questioned over Gudmundsson's involvement, and whether he would receive any money from the deal, Anderson said: "He has resigned and is no longer connected with the club. We have not released details of the deal but it's kind of obvious. Although it has been very complicated with the documentation we have had to go through, it is also very simple at the end of the day."

Although outgoings have been gradually cut over the past 18 months, the club face a more stringent demand to be self-sufficient because of the nature of the new owner. Writing in the Times, Gary Jacob insists CB Holding will want to maintain the value of West Ham and is unlikely to sell too many top players because it could risk relegation and therefore a drop in value. Equally, it is unlikely to invest much money for transfers. Some cash will be raised by the departure of squad players and possibly Matthew Upson this summer.

In today's Sun, the defender is said to have rocked West Ham by admitting he needs European football to achieve his World Cup ambitions. The article claims Upson fears his lack of big-match experience will count against him when it comes to claiming a place in Fabio Capello's starting line-up in South Africa next year. "Every day I'm striving to become a first choice for England," he said. "But I'm coming from a negative position in terms of where Rio and John Terry have been. I would definitely agree that more European experience would help me. It definitely favours them to be playing in the Champions League every year. There is a massive part of me that wants to play in the Champions League. I experienced that competition as a younger player at Arsenal and I'm desperate to play there again. Playing in the Champions League every season definitely puts you in a position where you can compete against the best players in the world. And I am now at the stage of my career where I feel ready to participate in that kind of environment. I am sure I could play at that level."

Ominously for manager Gianfranco Zola's hopes of spending money, reports the Independent's Ian Herbert, the club's new non-executive chairman, 45-year-old Englishman Andrew Bernhardt, is Straumur's head of debt, but Bernhardt said: "I can assure fans we will sanction investment in new players, but all within the parameters of sensible budgeting based on revenues generated by West Ham." Bernhardt, who has no background in football, continued: "I'm delighted an agreement has been reached and look forward to working with [chief executive] Scott Duxbury and his team in the coming years." Bernhardt will not have day-to-day involvement in running the club, that will remain with Duxbury.

The plan is for West Ham, who have a turnover approaching £100 million, to become a "self-financing entity" in which money for player transfers and wages is covered by the business itself – although Straumur has not ruled out adding extra investment and will raise the finances needed to build the new training ground, for example. At the same time Straumur has pledged that it will not take a "dividend" from West Ham and any money generated from player sales will be ploughed back into the club. "We are not here for a short-term game but want the club to do well and progress," Andersen said.

The drive towards self-sufficiency puts the emphasis on Gianluca Nani, the club’s technical director, to find promising players. He is said to have an extensive short-list. "From an economic point of view, there will be more stability," Nani said. "We will not revolutionise the squad. Our intention is to keep our best players and allow those who ask to leave to go." Meanwhile, the Express think Gianfranco Zola will plough on with his plans to buy three new players with the takeover providing the Italian with both transfer funds and the ability to hold on to his best players. Zola, reports the paper, has identified a defender, midfielder and striker to help take the club forward and is close to doing business. He has already been linked with Rennes right-back Rod Fanni and Chilean striker Luis Jimenez, who plays for Inter Milan. The Sun believes the latter will be the subject of a £15 million raid. Speaking in the Mirror, Nani has confirmed the interest. "He is a great player, one that we have always followed," he said. "He is a possibility but nothing is certain. He is also a non-EU player and it is not easy to get a permit for those players in England."

Zola, who has overseen the breakthrough of academy graduates James Tomkins, Jack Collison and Freddie Sears into the first team, wants to create a squad of about 21 players with three goalkeepers. His belief is that a smaller, tightly knit group of players, younger and more experienced, will offer a better chance of progress than accommodating a much larger squad. Trevor Brooking has also welcomed the news. "The priority is to support Gianfranco and give him a bit of money to try and strengthen the squad – certainly from an attacking point of view – and to try and make them a viable Premier League club," he said. "That’s what hopefully will emerge from this deal that looks as if it has been resolved this week. Stability now seems to be the emphasis for the club."

While the Hammers can at least be grateful they have momentarily avoided becoming the most serious Premier League casualty of the credit crunch, the Times declares that West Ham United still faces financial limbo with CB Holding embarking on a three-year plan to run the club while aiming to recoup the money it is owed when the financial climate improves. This despite the presence of at least one active prospective buyer – American, according to some sources – who has been waiting in the wings. Several other bids have reached the due diligence stage since Gudmundsson was hit by the global economic meltdown, but none has come close to his £150m asking price.

The club will be forced to balance their books in the meantime even though CB’s representatives have held talks with interested parties in the past week and a takeover could still conceivably occur sooner rather than later. "We don't see anyone out there willing to buy at our price," said Straumur's Andersen. "We live in a world where if anyone came in with a ridiculous sum of money it would be looked at. We don’t see anybody doing that and we will hold on to the club for the next two or three years at least."

Although, there appears to be no concerns at West Ham that Straumur's own financial plight will see it fail the Premier League's fit and proper person test, the Guardian are not so convinced. That test may rule out an individual who has presided over the collapse of a football club but not necessarily the collapse of another business, such as a bank. The league said it had asked West Ham to provide details of the change of ownership. "Once we have that information we shall assess and, if needs be, act accordingly," a spokesman said.

What is clear is that the parent company of CB Holding faces a hearing on Thursday to determine whether it can have a six-month extension to a standstill with creditors. According to Matt Scott, the club's new owners could be forced into bankruptcy proceedings within 72 hours, casting doubt on assurances that it has brought stability to Upton Park. Straumur, which is effectively bust, has a moratorium over its own liabilities and must apply on this week to the District Court of Reykjavik for a six-month extension to that agreement.

The paper reveals that in a presentation made to creditors last Friday, Straumur executives said: "The moratorium provides a 'standstill' period during which Straumur can pursue a restructuring of its financial position. Unless Straumur successfully petitions the court for an extension, the moratorium will end on 11 June 2009. As stated above, Straumur intends to apply for a six-month extension of its moratorium." Even if the Reykjavik court is persuaded the moratorium should be extended, Straumur must convince creditors its plans for West Ham and its other managed assets are acceptable. The transformation of the collapsed investment bank into an asset-management company is said to be a fait accompli by Straumur's spin doctors in Iceland and London. But it depends on a "composition agreement" under which creditors accept a fixed sum.

Scott insists a meeting at which creditors may present their claims against Straumur is set for 6 August. If agreement cannot be reached, the outlook for West Ham's new owner is stark – a winding-up committee, made up of three attorneys of Iceland's supreme court and independent of the Straumur executive, would be called into action. "If composition proceedings are rejected, or the attempt to seek a composition is unsuccessful, the winding-up committee will request that the district court place Straumur's estate in bankruptcy proceedings," said the presentation to creditors. "A liquidator would then be appointed by the district court."

Straumur's confidential statements to its creditors on Friday would seem to be at odds with claims it made in public yesterday. "CB Holding fully supports the executive management of the club and acknowledges the considerable progress achieved this season both by Scott Duxbury, chief executive of West Ham, and the club's manager, Gianfranco Zola," said a statement. "CB Holding has no intention of changing the executive management or direction of the club."

Yet, if Straumur fails to reach agreement with creditors or to persuade the courts to extend the moratorium, it will present a severe test for the Premier League's rules governing fit and proper persons. Under those regulations directors and significant shareholders cannot have been made bankrupt. They are currently designed for individuals but, in the event that a club's controlling shareholder is a bankrupt company, the league's board would examine it. The league have already confirmed it has asked West Ham to provide documentation.

Even if Straumur's plans pass muster with the courts, creditors and league, writes Scott, there will be no return to the liberal spending of Gudmundsson. According to its presentation to creditors Straumur will now rely on "the establishment of a new and simplified business model appropriate to the reduced activities and scale of Straumur's operations as an asset management business".

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