The meaning behind the Sports Direct filing: Why the Newcastle United takeover is imminent

While searching for developments on the Newcastle United takeover earlier, I discovered that the contents of Sports Direct’s ‘authority to buy back shares’ filing had been released. This surprised me, as the previous two filings on this authority aren't available to the public. 

I decided to analyse the contents, and revaluate the speculative conclusions I reached in ‘Sports Direct Ltd: The Next Chapter in the Newcastle United Takeover?’. In that article, I analysed why Mike Ashley might want to repurchase Sports Direct shares, why Sports Direct need an injection of cash to do so, and how this relates to the Newcastle United takeover. If you haven’t read that article already, I’d highly recommend you do so for additional context. You can do so by clicking here.

The Law on Share buyback (if you read my previous article, skip this!):
Yearly, share buy backs are capped at £15k or 5% of a company’s value, whichever is lowest. In the case of Sports Direct, this will be 15k worth of shares per year. This cap can only be increased if the majority of shareholders vote to do so, followed by a filing at Companies House. If released, the filing will state how many shares the company have allowed themselves to buyback, and thus how much they are planning to invest in their own shares in the near future.

The contents of the filing:
This filing contains numerous ‘resolutions’, which each increase Sports Direct’s cap on share buyback. I will go through the resolutions one by one, explaining how many shares each resolution have allowed Sports Direct to buy back, followed by the implications this has for Newcastle United. Resolution 9 allows for the purchase of up to £17.6 million in Sports Direct shares. Resolution 10 allows for the purchase of up to 35.3 million in Sports Direct shares, on top of that permitted by Resolution 9. Resolution 11 allows for the company to purchase up to £2.6 million in ‘equity securities’ in accordance with s560 of the Companies Act 2006, which defines equity securities as 'ordinary shares'. Finally, Resolution 13 allows for Sports Direct to purchase up to 79.4 million shares in the company, on top of the cash sums permitted in Resolutions 9, 10, & 11. At today’s Sports Direct share value, Resolution 13 allows for the purchase of £297.7 million worth of Sports Direct shares. So, in total, the filing permits Sports Direct to buyback around £350 million of its own shares.

What does this mean for Newcastle United?
The theory I put forth in ‘Sports Direct Ltd: The Next Chapter in the Newcastle United Takeover?’, was that Mike Ashley was going to sell Newcastle United, then use the proceeds to invest in Sports Direct shares. However, I had initial doubts regarding this theory, as the precise amount of shares permitted for buyback under this filing weren’t available to the public. Therefore, the cap could’ve been lifted for an ‘employee share scheme’, or for the reinvestment of funds generated by a Debenhams share sale, rather than a Newcastle United sale. However, £350 million is far too much for an employee share scheme. Secondly, Mike Ashley’s Debenhams stock is only worth around £40 million. The cap would’ve only been lifted by £40 million if it were for the investment of funds generated by a Debenhams sale.


The contents of this filing confirm my belief the Newcastle Takeover is going ahead. Mike Ashley will use £350 million generated through the sale of Newcastle United to reinvest in Sports Direct shares. This is why he established the legal structure to allow himself to repurchase £350 million of Sports Direct stock last Thursday. He wouldn’t have raised the cap if he wasn’t planning to use it. The amount he has raised the cap by is too aligned with the value of Newcastle United football club to be a mere coincidence. In conclusion, the contents of the filing released today has confirmed my belief in my initial theory that the Newcastle United takeover is going ahead. I believe the price has been agreed for around £350 million pounds.

Comments

  1. Anonymous8 January 2018 at 12:37

    It looks like you may have foreseen a scenario that the local and national journalists dismissed. Of course they'll stand by their 'sources' and bull**** their way out of It, or tell us that they predicted this all along. Even if you end up being wrong, your articles have been well written, very informative and interesting.

    ReplyDelete
  2. Jorge Miguel9 January 2018 at 02:47

    I think you've got completely the wrong end of the stick here. Sports Direct will be purchasing up to £300m in shares in Sports Direct (either for cancellation or to be put in treasury). This reduces the amount of shares in circulation and will in theory increase the Earnings per share . This has nothing to do with Mash Holdings. If Mash holdings want to use the proceeds of the NUFC sale to buy Sports direct shares, they would have to do it on the open market or do a deal to buy out some of the big institutional investors. This would mean there are still the same number of shares in circulation, unlike Sports Direct buying it's own shares back.

    ReplyDelete
  3. Jorge Miguel9 January 2018 at 02:48

    This comment has been removed by the author.

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  4. Jorge Miguel9 January 2018 at 02:48

    This comment has been removed by the author.

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