Shares for sale

[Snake]

£1m worth.

[ty cobb]

This is quite old news http://www.oufc.co.uk/news/article/0031 ... i05eEPM.99 but would be grateful if anyone could shed light on why they're doing it and structuring it in this way?

Something sinister or pretty normal?

[Snake]

What is news is that a couple of hours ago full details are now available on the Companies House website.

[slappy]

I think it was confirmed on the radio Oxford phone in a few weeks ago that it was Eales who had purchased £200,000 of the OUFC preference shares.

I think they've got their timings slightly wrong in terms of authorising the share capital increase at the AGM, but as Ensco and WPL own more than 75% of OUFC's voting shares, they can pretty much do what they like.

PROS of issuing preference shares:-
doesn't increase the debt of the company
may be a way around a salary cap
may be used to get fans to 'invest' in the club, but it's basically a donation.

CONS (to anyone buying them)
they are not redeemable
they can only pay dividends out of available profits (of which there are none at present)
no voting rights
no right to attend the AGM.

[ty cobb]

Thank you Slappy for your helpful reply.

So on the face of it, and assuming DE buys the shares it's win win for OUFC, investment in the team and no debt created?

There were not any CONS to OUFC in that list........................

[slappy]

If for instance the club became extremely successful and eliminated past losses, then the preference shareholders would get a 5.25% dividend in priority to any dividends payable to ordinary shareholders.

[Ancient Colin]

Mind you, under IAS 32 / FRS 25 it's quite possible for preference shares to be required to be shown as liabilities rather than shareholders funds and the dividend payments to be counted as interest. Not saying that's the case here, because I don't know the terms of the issue.

[Kairdiff Exile]

CONS (to anyone buying them)
they are not redeemable
they can only pay dividends out of available profits (of which there are none at present)
no voting rights
no right to attend the AGM.

Apologies if this is a naive question, but why would anyone in their right mind buy them? Good for the club in terms of bringing in money, but I can't see what I (as an ordinary punter) would stand to gain by owning any. Again, this may be a naive question - but apart from emotional attachment to OUFC, why would anyone be better to buy these (mickey mouse?) shares rather than proper shares in a FTSE 100 company?

[GodalmingYellow]

I think it was confirmed on the radio Oxford phone in a few weeks ago that it was Eales who had purchased £200,000 of the OUFC preference shares.

I think they've got their timings slightly wrong in terms of authorising the share capital increase at the AGM, but as Ensco and WPL own more than 75% of OUFC's voting shares, they can pretty much do what they like.

PROS of issuing preference shares:-
doesn't increase the debt of the company
may be a way around a salary cap
may be used to get fans to 'invest' in the club, but it's basically a donation.

CONS (to anyone buying them)
they are not redeemable
they can only pay dividends out of available profits (of which there are none at present)
no voting rights
no right to attend the AGM.

Of course it creates debt. Preference shares are debts, as are all shares. They are just a specific type of debt. A type that pays dividends to the holder at a pre-agreed rate. A type that is paid out in the event of dissolution, prior to (hence the name preference) ordinary shares.

How is it a way around the salary cap?

It is not a donation either. Have you been reading the wrong schoolboy book of company finance again Slappy?

Preference shares can be redeemable. The terms of the preference shares will be set out in the sale documents. Often they are redeemable after a set period of time or after having paid out a set amount over a period of time.

All shares only pay out from undistributed profits. That's what dividends are. It is illegal to pay dividends when there are no undistributed profits from any type of shares (unless there is some very obscure type that Tim is going to tell me off about ignoring).

There are no voting rights attached to preference shares though, on that you are correct.

The reasons for using them are that they are repaid before ordinary shares and so Eales' shares will be repaid ahead of Lenagan's, and that they pay dividends ahead of ordinary shares (not that the club will be paying any dividends out in the foreseeable future due to accumulated losses). In practice this means that if the club make a profit which wipes out the accumulated losses (e.g. on accession to the Premier League) and provides distributable profits, then Eales will get his money back ahead of Lenagan. It also makes the balance sheet look better, because liabilities as shares do not form part of the obvious debts of current and long term liabilities.

Does the FL have rules about debt levels? If so that may be a reason for using prefs as well, but I must admit it is surprising to use prefs ahead of loans, as loans provide better security to the lender. I would take it as a sign of long term commitment to the club.

[Eric Pollard]

Are we sure preference shares don't get round the salary cap? Isn't that based purely on turnover?

Talking of money introduced for the benefit of the club by supporters, what exactly has happened to the 12th Man fund? I contributed to the fund - and raised money for it - in the expectation that it would be used for squad building - if it's not going to be used let's have it back!

[slappy]

OK Terry, educate me. The Directors offer these preference shares for sale to you. You buy some. What do you think you have apart from a pretty certificate to stick on the toilet door? Is this anything other than a donation to the club in all but name?

[GodalmingYellow]

OK Terry, educate me. The Directors offer these preference shares for sale to you. You buy some. What do you think you have apart from a pretty certificate to stick on the toilet door? Is this anything other than a donation to the club in all but name?

I wouldn't buy them!

See my post above which answers your question.

I understand what you are trying to say, but there ae big differences. For a start, donations would form part of taxable turnover (which could actually help the wage cap), whereas share sales do not. Share sales are for the provision of working capital. Secondly, donations give tax relief to the donor, whereas preference shares do not. Shares yield dividends, whereas donations do not. Shares are redeemable, whereas donations are not. Shares only lose their redemption status on dissolution. Those are some of the differences.

[slappy]

I can't understand why Eales would buy preference shares rather than just a long term loan with no fixed repayment. If he thinks he's getting a dividend, he's wrong unless there's a huge turnaround in fortunes.

They can't just be repaid either.

So are they planning on persuading fans to buy them?

Someone please come up with a good reason for them.

[slappy]

All I can see is if any fan buys pref shares they're subsidising Eales and co's funding of the club.

[GodalmingYellow]

I can't understand why Eales would buy preference shares rather than just a long term loan with no fixed repayment. If he thinks he's getting a dividend, he's wrong unless there's a huge turnaround in fortunes.

They can't just be repaid either.

So are they planning on persuading fans to buy them?

Someone please come up with a good reason for them.

Of course they can be repaid, in exactly the same way other shares can be repaid, subject to the terms of sale, and acceptance of the board (which Eales & Co control anyway).

I've given you the reasons why they would be used. A fans sale might also be partially on the cards, but I can't see too many buying up non-voting shares.