Friday, 16 August 2013

And then there were 4 (at least): The ownership of Leeds United

Another week, and the confusion over the ownership of Leeds United continues. As pointed out here upon the release of GFH’s financial results, the ownership structure had changed, with GFH now owning a minority stake. Following the release of the accounts, the ownership structure disappeared and then reappeared on the website 24 hours later. The revised ownership of Leeds United is stated as follows:

Leeds United Football Club Limited ('LUFC') the company that holds the share in the Football League, is a member of the West Riding County Football Association and a Full Member of the Football Association.

LUFC is a wholly owned subsidiary of Leeds City Holdings Limited ('LCH').

LCH is wholly owned by LUFC Holding Limited ('LUH') a company based in Grand Cayman.

LUH is managed by GFH Capital ('GFHC') on behalf of its investors.

The shareholders in LUH that hold over 10% are: -

i.    GFHC
ii.   International Investment Bank
iii.  Envest Limited

GFHC is a wholly owned subsidiary of Gulf Finance House, BSC.

Envest Limited is owned by Mr and Mrs Salah Nooruddin.

Our ownership is therefore derived as follows:


So what does this mean for Leeds United Fans:

Do GFH still own the majority of Leeds United?

In a word, no. GFH is now a minority owner of Leeds United, but as was subsequently clarified, they do control a majority stake.

GFH is a private equity fund management business. Their business model is to raise equity from clients and invest it in projects. Their income stream is:

·         Profit on successful investments from their own capital

·         Fees charged to clients in managing their capital

·         Promote or effectively a bonus for achieving a profit in excess of a target return

GFH will therefore raise a consortium of investors around a project, invest that capital and execute a business plan. Typically these clients will be passive investors, with GFH retaining de facto control over all business decisions, hence GFH’s reference to being in majority control.
A synopsis of GFH’s business model can be found here.

Is this the large investment talked about and do we have more cash to invest?

In my opinion, no. From the messages trailed by GFH and other parties, it is likely that these investors came into this relatively early. It is likely that this restructuring was completed in the summer after Bates had left in order to “clean up” the investment structure.

This hasn’t led to further investment (just see McDermott’s spending power!) and any capital is likely to be diverted to funding the cashflow of a club which is still struggling with the excesses of the Bates era. It is likely that any further investment will see a further reduction in GFH’s stake and given this is still “held for sale” on the bank’s balance sheet, I could see this happening over the short to medium term, with GFH remaining in control and charging investors fees. Typically PE fund managers only have small stakes in deals and profit from fees and the promote (or bonus) from outperformance. Expect this sell-down to continue.

Will this reduce transparency?

Given the size of Leeds City Holdings (and subsidiaries), there will remain a requirement for the companies to file detailed accounts which are public knowledge (and which I, plus many others will be following in close detail). Given the Bates-era legacy issues, I would also expect to see GFH highlighting the financial performance to provide fans with clarity as to the issues they’re facing.


The reorganisation has little practical impact but does provide markers to the future ownership structure. Taking large stakes in companies is generally not practical for private equity investors. It is too capital intensive. I would therefore expect more investors to be introduced over the coming months with GFH diluted down further.

Does this concern me? No, GFH will likely remain in day to day control, managing the club on behalf of others. To date they have proven to be adept at identifying the issues with the club and seeking to resolve them. It is important for fans to remember however that even for all the PR spiel, GFH will be focussed on securing the most profitable exit for their clients. Whilst this should be aligned with the aspirations of the fans, this might not always be the case.  

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