Why Kroenke might sell his Arsenal shares

That’s right, just before our big Derby match, the Board decides to go off the deep end. Prepare yourselves my fellow Gooners this summer is going to be a roller coaster. Lady Bracewell-Smith made her play, hoping to cash in on Kroenke. But no. Kroenke turns the tables and upends Arsenal and the NFL (maybe even the NBA, but that’s a whole other story). How? Because he announces that he wants to buy the St. Louis Rams. Sadly this decision illustrates why Silent Sam is a good businessman, just what we need; so his potential movement away from Arsenal is bad for the Club.

So lets review briefly: the Rams are valued around $800m; Kroenke owns 40% of the Rams; now, he’s going to buy the remaining 60% (roughly $480m or £312m).

This is a good buy. He has the cash (or can raise the cash easily) to pay that amount; and, because of his 40% equity stake and the well run NFL business model, he can borrow the money very cheaply. Most likely, he’ll put some cash in and borrow the rest. I won’t even talk about the option of moving the team to Los Angeles and the increase in value that means.

Now compare this to Arsenal. Kroenke would need to pay roughly £700m (or $1 billion). Not to mention he’d need to assume whatever remaining debt Arsenal has. On top of this, we need an injection of funds for transfer fees. Arsenal is a cash black hole at its current valuation and debt. Buying the Club only makes financial sense through a patient purchase of all the shares at the lowest possible price. Otherwise we need a sheikh or an oligarch.

To put it another way: Kroenke can buy the Rams; own the team outright and not deal with a board; he can immediately make money AND have the team increase in value; and, he can do it all with minimal or no debt. But, if he were to buy Arsenal, he’d have to borrow a huge amount of money and wait for the value of the Club to increase, because the cash would go to debt servicing -something nobody wants. What would you do?

Worse! What’s the best way to raise money for this deal? Sell his Arsenal shares. Thanks to Bracewell, she just increased the value of his shares overnight by 15-20% -from £8.5 to £10k/share. From the best I can figure, this means his value just went from about £160m ($245m) to about £180m (or $276m).

In any case, we might just be watching the withdraw of Kroenke from trying to buy the Club. It’s highly unlikely that he will try to buy both teams right at the same time. Everything is up for grabs now.

-the student

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3 Comments

  1. I don’t think he would have to sell his Arsenal shares to raise the money. If he does go through and try to buy the Rams, he would have to sell his stock in both the Denver Nuggets and the Colorado Avalanche because of the NFL’s cross-ownership rule.

    • Unless he challenges the NFL rule or asks for an exception (which is possible); but I don’t see him selling either team at the moment. Especially since he’s a huge basketball fan. That’s his first love. But assuming he did: that means in the next six months or so, he’ll have to find buyers for two teams and buy two teams. That’s a lot to do. My worry is that selling the shares is the path of least resistance. Cheers.

  2. […] in price. Indeed, should Kroenke decide to launch a take over after May, the price of the shares would have been £8.5k, but now the same shares are worth […]


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