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Strengthened also by the conquest of the “scudetto” or the Serie A’s Italian soccer Championship, after yesterday’s match against Sassuolo, AC Milan is preparing shortly to pass control from Elliott Management to RedBird Capital. In fact, in recent days, it has become clear that RedBird, a US private equity operator, founded in 2014 by the former Goldman Sachs Gerry Cardinale, has bet Barhain-based Investcorp fund in the race to conquer the so-called Rossoneri soccer team with a 1.3 billion euro offer. RedBird uncovered its interest at beginning of May, after the exclusive negotiation period between Investcorp and Elliott had expired on April 30 (see here a previous article by BeBeez).
It is not clear what went wrong in the negotiations between Investcorp and Ellliot, but there is talk of a particular clause required by the US fund that would have created the break. We recall that, even after the expiry of the exclusive negotiation with Elliott, the Arab fund had nevertheless gone ahead to organize the financial structure of the offer of approximately 1.18 billion dollars, which is said to have been financed for 800 million euros with equity, while the other 400 millions had to be in the form of a bank bridging loan, which could then be refinanced with a bond. Of the 800 million euros of equity, however, about half had to be in the form of mezzanine finance or preferred equity, made available by the American fund Ares Management.
As for the debt, Elliott’s precise request was that it remained with the acquisition vehicle, which therefore should not have been merged with AC Milan, once the acquisition was concluded, thus transferring the weight of the debt to the target company, as often happens. in leveraged buyout transactions. It is reasonable to think that this request also applies to RedBird. Elliott’s idea, that is, would be to sell only to those who have a financial structure that does not burden the Rossoneri team, which has just been restored to health after the care of the American fund.
We recall, in fact, that six months of the 2021-2022 financial year closed at the end of December 2021 with a net profit of 3 million euros, which is a real miracle, after the series of heavy losses of previous years (see here Calcioefinanza). This is a result which, on the one hand, derives from an increase in revenues of 40% compared to the same period of 2020 and which, however, is largely attributable to the approximately 20 million euros raised thanks to the sale of the property in Via Aldo Rossi 8, in Milan, in the Portello area, home of the Rossoneri football team, to the Inarcassa RE Compartment Uno fund, managed by Fabrica sgr (see here a previous article by BeBeez). The seller was Casa Milan srl, a company owned 99% by Milan Entertainment and 1% by the parent company AC Milan spa. However, the increase in revenues should continue during the year, thanks to UEFA’s revenues for the return to the Champions League and the revenues from the stadium, so much so that we are talking about as much as 300 million in revenues at the end of the year as of 30 June 2022.
We recall that the 2019-2020 FY Statements, sunk by Covid-19, ended with the most serious loss in the history of Milan, 195 million euros (compared to only 168.6 million in revenues), after 145, 9 million in the 2018-2019 season, 126 million in 2017-2018 and 73 million in 2016-2017. It is no coincidence that KPMG in its May 2021 report on KPMG Football Benchmark’s – The European Elite sector had calculated a decline in the enterprise value of Milan by 19% to 427 million euros at the end of 2020 from 2019 and 22% compared to 2016, the most pronounced decline suffered in the 5 years by the 32 teams under observation (see here a previous article by BeBeez).
But in the face of monstrous losses, Elliott has always made available the necessary capital to guarantee the keeping of the accounts. In AC Milan’s 2020-2021 FY Statements at 30 June 2021, we read that the group recorded a consolidated loss reduced to 96.4 million euros, against revenues of 260.9 million, a positive net equity of 67, 3 million and a negative consolidated net financial position at 30 June 2021 of 101.6 million. And the Report on the financial statements continues: “The majority shareholder Rossoneri Sport Investment Luxembourg sarl (vehicle of Elliott, editor’s note) has guaranteed the commitment to financially support the companies of the Milan group for a period of not less than 12 months from the date of approval of the these consolidated financial statements. During the 2020/2021 financial year, Rossoneri Sport Investment Luxembourg sarl made capital injections in favor of the parent company for a total of 129.5 million euros “. This figure is in addition to those already disbursed by the fund from July 2018 to the end of September 2020 Elliott in subsequent recapitalisations for a total of approximately 650-700 million (see here a previous article by BeBeez), including the 303 million euros of bonds and loans maturing in October 2018 and which were converted into equity. That of the 202-2021 financial year was the last recapitalization conducted by Elliott: “In the last year we have not invested in terms of equity in the club’s coffers and we should not do it even in the short term: the boat has stabilized and is focused on commercial growth as well as performance on the pitch”, said Giorgio Furlani, Portfolio Manager of the Elliott fund and director of AC Milan, who spoke at the recent FT Football Summit 2022 organized by the Financial Times at the beginning of March (see Milan News here) .
Elliott, therefore, has worked well, but believes that there is still some value to be extracted from the Rossoneri team and in fact will reinvest for a minority alongside RedBird, who for his part knows the sports sector well. As previously mentioned by BeBeez, last year he bought 10% of Fenway Sports Group, owner of Liverpool, it is said for 750 million dollars, while in the summer of 2020 he bought the French team of Ligue 1 Toulouse and also owns the 15% of the Rajasthan Royals in turn Indian Premier League football team. RedBird also promoted Spac RedBall Acquisition Corp, which raised $ 1.3 billion and last October 2021 announced the business combination with SeatGeek, an online ticketing platform (see the press release here).
Elliott had become the owner of the red-black team when the previous Chinese owner, Yonghong Li, had not repaid in time the US fund that the previous month had anticipated the last tranche of 32 million euros of capital increase that the Chinese financier has he was committed to subscribe. Elliott, therefore, had then enforced the pledge on the Luxembourgish Rossoneri Sport Investment Luxembourg sarl, parent of AC Milan and had become the new owner of the team (see here a previous article by BeBeez), without having to wait until October 2018, when, as mentioned, he was in the football team’s debt of 303 million euros expires. Even in that case, if the debt had not been repaid, Elliott could have enforced the pledge on AC Milan’s shares and become the owner(see here a previous article by BeBeez).