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SD Thorpe

Real Share value should be closer to £0.00

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First off - new poster - read for ages - getting very very frustrated.

Would like someone with a Financial/Banking/Investment background to verify my thoughts.

The EDP hinted at this in the paper and online edition this morning - e.g. City took effectively a huge mortgage to pay for the Jarrold stand and bring debts together - this is secured against the value of the assets of the club - e.g. the £16m in shares (which in turn is valued on the fixed assets)

So basically the two figures net each other off - with obviously the £16m worth of shares becoming worthless as they have a £16m debt attached to them.

In more layman terms - If I purhcased a house with a 100% mortgage for £100,000 then my house is worth £100,000 - not the value of the house and the mortgate- e.g. £200,000.

Or in another way - Peter Cullum can purchase the debt from the lenders for £16m and take total control of the club shareholder by saying this must be repaid immediately (not likely - and the hostile way (and Marcus Evans way I believe) of taking over the club) - and the club would only be able to do repay the debt by providing the assets (ideally in the form of shares if a lender took this action).

One more thing - the £30 value of shares is also very questionable - this is based on the "Nominal Value"/Issue price of shares not the value of the shares in the market place.

Again, anyone with a share certificate can read it and it will say something along the lines of Ordinary Shares of 5p - then look up the shares on the stock exchange and you will find the market value of the shares - this will not be 5p. Confusing the Nominal Value and the Market Value of shares seems a bit odd.

Just my thoughts...............

Welcome to be shot down in flames if I am wrong - would like others to confirm if my understanding is sound.

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Sorry Should not reply to my own response!!!!

Basically the Club can say the shares are in fact worth £32 Million but have a £16 Million pound debt attached to them so therefore can be purchased for £16M

Or they can say the shares are worth £16m but have a £16m debt attached to them so can be purchased for £0

The club seem to be saying the shares are worth £16m and ignoring the debt attached to them and then on top saying the purchaser would also need to clear the debt.

Having their Cake and Eating it.

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What you are feeling after is the concept of NET value - the value of the assets less the liabilities. In commercial business and expecting profits account would have to made of future earnings - bu this does not apply here. In this case the debts of approaching £17m should not be added to the supposed value of the assets, but subtracted. I am surprised that someone like Doncaster did not appreciate this, but I am sure that Peter Cullen does!Whether the price per share is a realistic valuation is a moot point, as the shares are not traded on any market. In most companies future earnings prospects are an important consideration, but again this does not really apply. Those of us who bought shares in NCFC did so not expecting dividends, and anticipating that as the value of the assets diminishes with time the value of our holding will probably not keep pace with inflation. I am amazed if my shares, bought at £10, are now worth £30.

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Thanks Both.

Yes, that is another concern of mine - surely the club are financially aware that the shares have a debt attached to them which devalues them.

If this is a typical example of the board financial nounce then it is very worrying.

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At 31 May 2007 when the last accounts were published, the balance sheet had net worth of £15.9 million...i think this is where the £16 million value that is quoted  is coming from.

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Another option that I dont understand that has not been discussed and again has been hinted on in Barry Skippers article in the Pink Un.

Peter Cullum wants to become majority shareholder - not the only shareholder - the club is saying that if he own more then 30% odd then he will have to offer to buy 100% of shares - fine no problem with that.

Surely though the compromise is that Peter Cullum buy 100% of shares and then immediately sells them back to Delia 25% and then MWJ 24%

Meaning Peter Cullum is majority shareholder with 51% and the sell back to the two individuals does not reach the 30% odd that will re-trigger the compulsory purchase of shares.

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The problem that I see with this is that you are making the assumption that the value of the assets is the same as the loans, such as your example of the house.  If in your example, you said that the value of the house was £250k, and the mortgage was £100k, then there would be equity of £150k. 

Based upon the price that the land next to the ground was sold for, I think to value the land of the ground, car park & colney at more than £16m would be reasonable.  You then have to take into account that you are not just buying assets, you are also buying businesses and the brand.  For example, the restaruant, the share of the hotel, the football club itself.  Then you have other assets, such as the players. 

Yes, there are loans, but the situation is that all the shareholders (not only Delia & Michael) own a business.  They value it at a certain level, Peter Cullum values it at a different level. 

Going back to your house example, if you owned the house that you valued at £250k, with a £100k loan, would you sell it if someone said they value it at £175k.  They will spend £200k on improvements and extensions after the have bought it, pay off your £100k loan and give you £75k for the house.  I doubt that you would accept the offer as you would lose out by £75k (If you would accept, give me your phone number and I''ll buy your house off you)

The logic that you have used is that because there is a £100k loan that is all the house is worth, so the £150k of equity is should just be written off. 

Going back to the club, the shareholders (again, not only Delia and Michael), have valued the club at £36m.  £4m of that is loans from the board, £16m is loans from the bank and £16m is the equity owned by the shareholders.

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I have seen glimmers of correctness, but to try and bring it all together, here is a crash course on share valuation.

The most basic valuation of an entire company, and therefore the shares, is net asset value. I.e. you take the book value of the assets, and subtract the book value of the liabilities. However, its a bit simple as it pre-supposes that the loans are actually loans (and not non-share equity capital - i.e. do not need to be repaid) and assumes that the shares are in fact equity (i.e. not disguised debt), and that the net book value of the assets is an accurate statement of fair market value.

Alternatively, you can take the fair market value of all the assets, less the fair market value of the liabilities. This will get you closer to the truth, and may be a better valuation in the case of a club like NCFC.

Lastly, you can take the current fair value of the future cash flows expected on the investment (i.e. if you add up all the future dividends and investment calls, what do you expect the current value of those cash flows to be?).

As stated, the middle one (fair market value) is probably the most appropriate for NCFC, but question then becomes "what is the FMV"? Is it on a break-up/forced sale basis, or free choice sale? What provision should be made for the value of the footballers contracts for Bosman free transfers? Then there are questions over control premia - i.e. the 51st percentile of shares could be a lot more expensive than the 49th, as that block of shares gives the holder control. Its all quite difficult, which is why the parties have been discussing for the last 10 months.

All of this ignores the question over whether he intends to buy existing shares, or get issued more shares.

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A share is what anyone is prepared to pay for it. Under Barry Skipper''s plan PC should get the unissued shares for £25. Well I am an exsisting shareholder and as I would be happy to pay £30 for some of these unissued shares I don''t see why PC should have first choice. I think they should be put up for auction (sealed bids)before there is any question of PC getting them and lets see what the fans thing they are worth. My guess is that they will all go over night for well over £25!

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[quote user="SD Thorpe"]

Another option that I dont understand that has not been discussed and again has been hinted on in Barry Skippers article in the Pink Un.

Peter Cullum wants to become majority shareholder - not the only shareholder - the club is saying that if he own more then 30% odd then he will have to offer to buy 100% of shares - fine no problem with that.

Surely though the compromise is that Peter Cullum buy 100% of shares and then immediately sells them back to Delia 25% and then MWJ 24%

Meaning Peter Cullum is majority shareholder with 51% and the sell back to the two individuals does not reach the 30% odd that will re-trigger the compulsory purchase of shares.

[/quote]The 30% figure merely triggers the compulsory offer to purchase - individuals can only be forced to sell their shares to Mr. Cullum once his stake rises to 90%. Today''s article in EDP <click here> explains that quite well. As Barry Skipper says, not many fans would want to sell their shares (I certainly wouldn''t), so only a total of 68% is realistically up for grabs and Delia & Michael own a total of 57%. In reality, it really is just between the Stowmarket Two and Peter Cullum - if they don''t want to let him play with the ball, the deals off.

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[quote user="Bobzilla"]

Its all quite difficult, which is why the parties have been discussing for the last 10 months.

[/quote]

Except we''re told that they haven''t spoken since October, which is why Peter Cullum went public with his offer, to try and force the issue.

[quote user="Bobzilla"]

All of this ignores the question over whether he intends to buy existing shares, or get issued more shares.

[/quote]He has to buy mostly existing share capital, as there is only around 5% of unissued shares available for purchase. It comes down to talking turkey with Delia/Michael, or forgetting the whole thing - they have a blocking position.

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[quote user="ncfc_chris"]i''m not an expert on accounts but i''ve done my first year of a degree at uni and what bobzilla has put makes sense and explains a lot of the figures being banded about[/quote]

That''s Mr Bobzilla, LLB, LLM (Tax), ACA... :)

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[quote user="Bobzilla"]

[quote user="ncfc_chris"]i''m not an expert on accounts but i''ve done my first year of a degree at uni and what bobzilla has put makes sense and explains a lot of the figures being banded about[/quote]

That''s Mr Bobzilla, LLB, LLM (Tax), ACA... :)

[/quote]

i wish one day i can be half as qualified as you [:)]

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From the EDP:All of this taken at face value appears to add up. But, with industry

sources suggesting the shares are actually worth between £10 and 15,

the price to Mr Cullum could be between £5m to £8m.The

rationale behind the lower valuation of shares is that the value of

Championship clubs is tumbling because of falling equity and property

prices. There are also suggestions the value of City''s fixed assets is

less than the overall debt, raising the question of whether the club

could technically be insolvent.
The last accounts are drawn up to the 31st May 2008, nothing is going to happen until these are available.

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Who are you and Bobzilla are there.

1. Starting point for a valuation of the shares is the market value but as the shares are not traded then there is no published market value.

2. So you would then look at the discounted future cash flows allowing for the cost of money ( ie interest) - basically all football clubs with the exception of the likes of ManU, Arsenal, Liverpool, Spurs and their continental equivalents are non-profit making if you take the recent deloitte report on football clubs so do not have an economic value from future cash flows.

3. So then a basic minimum value would be what you would get if you shut the business down which is the net assets ie the value of the land and buildings plus other receivables less the debt and other payables. This is 16m per the last accounts. Divide this by the 535,000 shares gives you a minimum value of the shares of 29.9 pounds i.e. the shareholders are requesting the minimum value of the shares which it happens give them a notional return on the money they have put in (I don''t use the word investment becasue football is not an investment)  to inflation plus a minimal basic rate of interest. Consequently, the amount they are asking for is reasonable. (References to the notional increase in the share price given the shareholders a 20% profit makes about as much sense as if I said a 10 pound note is worth 20 pounds if I take a felt tip pen and write the number 20 on it)

However, in practive football clubs have a rarity, scarcity, desirability value beyond the economic value so you would also look at what other football clubs are valued at/have been sold for. There was a report on the bbc website but I can not recall the details.

In the end as others have said though the value of the shares is whatever two parties agree.

I''ve no doubt that PC knows all this and more and being the smart person that he I suspect that he is using public sentiment to pay less than a fair price for which I don''t blame him at all. The shareholders on the other hand recognise that they are very few people with the money or desire to buy the clubs as putting money into football does not make financial sense. On the other hand they recognise there are few football clubs for sale and only one NCFC so I believe they published the figures to attract an alternative to keep the bid from PC honest. In the end this is all standard negotiation tactics and hopefully they will agree a deal which is fair to all and most importantly beneficial to NCFC: 

 

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[quote user="T"]

3. So then a basic minimum value would be what you would get if you shut the business down which is the net assets ie the value of the land and buildings plus other receivables less the debt and other payables. This is 16m per the last accounts. Divide this by the 535,000 shares gives you a minimum value of the shares of 29.9 pounds i.e. the shareholders are requesting the minimum value of the shares which it happens give them a notional return on the money they have put in (I don''t use the word investment becasue football is not an investment)  to inflation plus a minimal basic rate of interest. Consequently, the amount they are asking for is reasonable. (References to the notional increase in the share price given the shareholders a 20% profit makes about as much sense as if I said a 10 pound note is worth 20 pounds if I take a felt tip pen and write the number 20 on it)

However, in practive football clubs have a rarity, scarcity, desirability value beyond the economic value so you would also look at what other football clubs are valued at/have been sold for. There was a report on the bbc website but I can not recall the details.

In the end as others have said though the value of the shares is whatever two parties agree.

I''ve no doubt that PC knows all this and more and being the smart person that he I suspect that he is using public sentiment to pay less than a fair price for which I don''t blame him at all. The shareholders on the other hand recognise that they are very few people with the money or desire to buy the clubs as putting money into football does not make financial sense. On the other hand they recognise there are few football clubs for sale and only one NCFC so I believe they published the figures to attract an alternative to keep the bid from PC honest. In the end this is all standard negotiation tactics and hopefully they will agree a deal which is fair to all and most importantly beneficial to NCFC: 

 

[/quote]

hallelujah

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If you are looking to buy shares in NCFC then there is nothing to stop you doing it right now (well in the morning).  Phone NCFC and ask for the company secretary, I am sure that she will be delighted to take your money.  If note phone the stockbrokers on London Street, Norwich - I am sure they will be able to advise you how to get some as they did the placing a few years ago.

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[quote user="lucky green trainers"]welcome, indeed there are plenty of merchants on here with loadsa banking experience - by all accounts!!![/quote]Had to double check your avatar there, this post is more Mello Yello than Mello Yello.[:)]

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[quote user="Fat Barman"][quote user="SD Thorpe"]

Another option that I dont understand that has not been discussed and again has been hinted on in Barry Skippers article in the Pink Un.

Peter Cullum wants to become majority shareholder - not the only shareholder - the club is saying that if he own more then 30% odd then he will have to offer to buy 100% of shares - fine no problem with that.

Surely though the compromise is that Peter Cullum buy 100% of shares and then immediately sells them back to Delia 25% and then MWJ 24%

Meaning Peter Cullum is majority shareholder with 51% and the sell back to the two individuals does not reach the 30% odd that will re-trigger the compulsory purchase of shares.

[/quote]
The 30% figure merely triggers the compulsory offer to purchase - individuals can only be forced to sell their shares to Mr. Cullum once his stake rises to 90%. Today''s article in EDP <click here> explains that quite well. As Barry Skipper says, not many fans would want to sell their shares (I certainly wouldn''t), so only a total of 68% is realistically up for grabs and Delia & Michael own a total of 57%. In reality, it really is just between the Stowmarket Two and Peter Cullum - if they don''t want to let him play with the ball, the deals off.
[/quote]

 

Do you think that pressure alone from the City fans will push D&M into accepting a slightly reasonable price for their shares from Cullum? i.e £20 per share or something...

 

 

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[quote user="Worst Wizard"][quote user="lucky green trainers"]welcome, indeed there are plenty of merchants on here with loadsa banking experience - by all accounts!!![/quote]Had to double check your avatar there, this post is more Mello Yello than Mello Yello.[:)][/quote]yeah, well - he''s not been on tonight much has he??? somebody had to!!!

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I doubt that PC wants to buy any shares from existing shareholders - the money would go to them and not go for players. He appears to want to have all new shares, worth £20 million, that way the club earns all the money, without any being siphoned off.If Delia and Michael want out of the club, rather than remain as minority shareholders, then they have to find more people to buy their £10 million stake - not an easy prospect. The question appears to be, can they accept a position on the board without the voting power they currently hold? I would have hoped that they could - after all, it''s what they''ve expected of the rest of us all these years. They have asked for peoples money more than once, knowing that they would have total control of how it was spent; now they are being asked to put themselves in the same position for the good of the club. Do they have the character to accept it? That will be the making, or breaking, of this deal.

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I''ll put in my 2 penneths worth. When you value a company it is not as straight forward as current assets minus current liabilities. A companies value is generally based around assets/liabilities as well as turnover, past profits and potential profits. Therefore it is completely different to the scenario of a house with a 100% mortgage. What that makes NCFC worth I have no idea but I suspect it is very little given that its almost impossible to make a profit with the club.

 

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Fat Barman

I have been trying to explain that view all week and you have summed it all up with that post

I love the fact that people on this board want to tell PC how to spend his £20 million.

He has been clear from the start that his money is for new players he does not want to buy the whole club

Do we really want to argue with the man how his money is spent thats his choice. 

If anyone here wants to do it their way then come up with their own cash

"now they are being asked to put themselves in the same position for the good of the club" and I think they have been found wanting!

 

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[quote user="Fat Barman"]I doubt that PC wants to buy any shares from existing shareholders - the money would go to them and not go for players. He appears to want to have all new shares, worth £20 million, that way the club earns all the money, without any being siphoned off.

If Delia and Michael want out of the club, rather than remain as minority shareholders, then they have to find more people to buy their £10 million stake - not an easy prospect. The question appears to be, can they accept a position on the board without the voting power they currently hold? I would have hoped that they could - after all, it''s what they''ve expected of the rest of us all these years. They have asked for peoples money more than once, knowing that they would have total control of how it was spent; now they are being asked to put themselves in the same position for the good of the club. Do they have the character to accept it? That will be the making, or breaking, of this deal.
[/quote]

Yes, i think that is spot on.  I think the problem here is that to Delia and MWJ this feels like a triple slap in the face.  They lose power, they lose (as they probably perceive it) popularity with the support as a lauded new "king" takes over from the washed up "queen", and in theory their share value is diluted.

Of course another way to view it is that they will gain goodwill and respect for graciously compromising with a much wealthier City fan who has an impeccable reputation and holds them in high regard, they can carry on working for the greater good of the club with a much more hopeful and optimistic situation on the pitch and divisions largely healed, and Cullums clout could lead to lucrative success and a place in the Prem which will leave their holding more valuable than it is now.

Positive or negative.  Your choice Delia.

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By the way Fat Barman, does the name of your pub have a link with catholicism by any chance.....?  If so, cheers for the beers! [B] [B]

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