What happens to Arsenal’s small shareholders if Alisher Usmanov buys all Stan Kroenke’s shares, or if Kroenke buys all of Usmanov’s?
You may be wondering: If one of our pet billionaires gets bored and decides to bugger off and leave Arsenal in the hands of the other, what will happen to the remaining small shareholders?
As you know, I like an ownership model where fans and supporters can own a small piece of their club. I don’t want to see one person using Arsenal as their personal toy.
At the moment, with no one in control of 75 per cent of Arsenal, the two major shareholders have to agree on any action that fundamentally changes the structure of Arsenal or its share position. So Stan Kroenke, with his majority shareholding, can appoint who he likes to the Board and pay dividends if he wants to, but he needs the agreement of Alisher Usmanov for any ‘special resolution’, for example to change the Articles of Association to make Arsenal’s prime business cattle ranching instead of football.
Kroenke also can’t de-list from the ISDX exchange, which means there will still be a market for trading in Arsenal shares, however stagnant it has become. But if Kroenke decides to sell to Usmanov, or vice versa, then small shareholders could face more of a problem. One of them will then be in control of almost 97 per cent of Arsenal and he may well decide that small shareholders are nothing more than a nuisance and prefer sole ownership. An owner can initiate what is known as a ‘squeeze out’, which is covered in the ever-fascinating Part 28 of the Companies Act 2006.
Under a squeeze out, a bidder for the whole company is allowed to “compulsorily acquire the shares of non-assenting minority shareholders”.
In some cases minority shareholders also have the right to be bought out by the bidder, but this is unlikely to apply at Arsenal (because those who want to sell have had plenty of chances and would get another chance at the time of any bid), so I won’t go into it. There is also a method called a ‘scheme of arrangement’ to remove minority shareholders, but this is usually where a buyer can’t get 90 per cent of the shares – also now not likely at Arsenal, so I’ll ignore it.
A squeeze-out can only occur when there has been a ‘takeover offer’. If there is only one class of shares, as there is at Arsenal, then this just means ‘an offer to acquire all the shares in a company’. So if SK and AU do a private deal and don’t bother offering to buy other shareholdings then the buyer may not be able to squeeze out the small shareholders afterwards – or at least not so easily. Given the armies of lawyers at their disposal, I’m sure they’d manage it if they really wanted to.
Anyone else could also make an offer for all of Arsenal at any time, but anyone else would need to persuade both Kroenke and Usmanov to sell in order to get over 75 per cent of the shares, which as I said above is the level at which you can really start to change things drastically. So it looks like no one else other than one of the current big shareholders is likely to barge in for the foreseeable future.
The rules state that: Squeeze-out rights may be exercised if the bidder has acquired or has unconditionally contracted to acquire:
a. at least 90 per cent in value of the shares of any class to which the offer relates; and
b. where the shares of that class are voting shares, not less than 90 per cent of the voting rights carried by those shares.
To put it simply, if you want to exercise squeeze-out rights you have to get 90 per cent of the shares that you are offering to buy, so 90 per cent of the ones you don’t already own.
At the moment Kroenke has 66.83 per cent, Usmanov has 30.009 per cent, and everyone else has about 3.16 per cent.
If Usmanov buys Kroenke’s stake, then Usmanov gets 66.83 per cent more of Arsenal, which is almost 95.5 per cent of the shares he didn’t already have (ie 66.83 is 95.5 per cent of 69.99, the percentage currently owned by Stan plus all small shareholders). So Usmanov would be buying at least 95 per cent of the shares he’s offering to buy, so he can go ahead and squeeze out the remaining small shareholders.
On the other hand, if Kroenke buys Usmanov’s shares but no one else wants to sell, then Kroenke gets 30.009 per cent more of Arsenal and about 3.16 per cent remains in small investors’ hands. So Kroenke will have bought 90.44 per cent of the available shares in his offer. Unfortunately this also – just – breaks the 90 per cent barrier.
So either way, small shareholders (read: supporters) could be stuffed, because if either billionaire buys from the other he’ll have enough of a stake to squeeze out everyone else if he wants to.
I imagine that whatever they say now, both would think small shareholders are far more trouble than they’re worth, so if they had a chance to get rid of them, they would. Given this, it’s useful that Usmanov is around to keep some kind of balance in the situation. It’s not ideal as an ownership model, but it could be worse.
Just for background info, and seeing as I’ve bothered looking it up, there are other rules to bear in mind regarding a shareholder getting to the 90 per cent threshold normally required to trigger a squeeze out, but in the current Arsenal situation I don’t think any apply. In summary:
- other shares already acquired can be included in figures if they were bought for the same price as the offer (Usmanov may have had this in mind when he was sticking to a purchase price of £14k a share, or at least claiming to)
- shares held by an associate (eg nominee company or subsidiary) of the bidder may be included in the 90 per cent threshold if they have been acquired under the conditions which apply to the bidder.
- if there are untraceable shareholders – and Arsenal have a few, from share issues around a century ago – then these shares may be included if needed to reach the threshold (this might have applied if Usmanov had not got quite as many shares as he now has).