Kop Kings – Liverpool FC

From the fields of Anfield Road to the offices on Bunhill Row, the takeover of Liverpool Football Club was played out in the full glare of the courts and the press. Legal Business talks to the key legal players

When John William Henry II descended the curving flight of stairs into the cool, inconspicuous client reception at Slaughter and May’s offices on Bunhill Row on the afternoon of 15 October 2010, he was met by an unusual sight. As the threshold of a law firm that has long prided itself on its understated manner, it’s usually exceptionally quiet. But that afternoon there was little evidence of calm: pandemonium had taken hold.

Henry, the owner of the Boston Red Sox, was buying Liverpool Football Club and the deal had just been signed at Slaughters’ offices. Sky Sports News had been broadcasting live from outside the building most of the week. Security was forced to let the press and fans inside the reception area for the announcement, as there were safety fears over the glass front of the entrance shattering under the pressure of the crowd. Once inside, photographers trampled through the water feature that flanks the stairs leading up to the mezzanine level.

Hemmed in on all sides, as the world’s press and an army of chanting Kopites in the famous red shirt swarmed the space, Henry announced that he had bought Liverpool FC. For Efstathios Michael, the Slaughter and May senior litigation partner and Nottingham Forest fan who had been representing Liverpool FC, it was the culmination of what had been a frantic few weeks. Clients had had to be sneaked out through staff entrances at the side of the building. Once he was caught by the press, demanding an update, as he tried to go in through the staff entrance on his way back from court. On another occasion, a Sky Sports reporter had second-guessed an attempt to get Liverpool chairman Martin Broughton into the building without fuss, and came tearing down the ramp following Broughton’s car into the firm’s underground car park. When the street-level gate closed behind him, the hapless reporter was left wandering the car park until he was rescued.

As Henry stood in reception, flanked by Liverpool FC directors Broughton, Ian Ayre and Christian Purslow, and quipped that he would be paying for the famous club ‘in pounds’, it was the end of one of the most compelling takeovers that Slaughters’ lawyers – or anyone else for that matter – had ever been involved in. A bitter, twisted and highly contentious transaction that had been played out in the full glare of the world’s media for months.

American dream

When American tycoons Tom Hicks and George Gillett bought Liverpool FC for £219m in February 2007, it was regarded as a watershed moment for the famous old club. Although the glory days of the 1970s and 80s were a fading memory, the team had won the 2005 UEFA Champions League in thrilling circumstances and was still regarded by any neutral as one of the crown jewels of The Football League. Hicks and Gillett had seen off competition from Dubai International Capital, which was advised by Freshfields Bruckhaus Deringer. With hindsight, this turned out to be a real positive for the club, given DIC’s subsequent financial problems. Liverpool FC chairman at the time, David Moores said: ‘This is a great step forward for its shareholders and its fans.’ Gillett and Hicks had bought up the club’s debt, and promised investment in new players and, most significantly, a new state-of-the-art stadium in Stanley Park.

‘The conditions imposed by RBS were unusual, and they worked. You haven’t seen the last of this type of arrangement.’
Mark Zerdin, Slaughter and May

However, far from everyone was convinced. Like Manchester United fans before them, Liverpool fans were uneasy at the prospect of brash American gunslingers buying their beloved club as a ‘franchise’ and turning it into a corporate asset. Daily Telegraph football correspondent Henry Winter, in an open letter to Hicks and Gillett on the same day of the announced takeover, warned the Americans: ‘Tread carefully. Liverpool are not a mere business, a megastore with pitch out back.’ Some might argue that the warning wasn’t heeded.

Andrew Ballheimer, managing partner of Allen & Overy’s corporate department in London, led the team advising Kop Football Ltd, the UK private investment vehicle that represented Hicks and Gillett’s interests in the deal. Ballheimer had form in this type of transaction, having advised Malcolm Glazer on his controversial takeover of Manchester United in 2005. DLA Piper corporate partner Michael Prince led the line for Liverpool FC, which had been a long-term client of the firm. Hicks also turned to Weil, Gotshal & Manges’ star dealmaker Mike Francies to handle the transaction. Francies, a die-hard Watford FC fan and football nut, was an ideal choice to front the deal. Weil, and Francies in particular, had also been long-term advisers to Hicks’ private equity company Hicks, Muse, Tate & Furst.

But it soon became clear that the deal didn’t quite herald the Shangri-La that everyone hoped for. A lack of success on the pitch, the failure to deliver a new stadium and a spectacular falling out between Hicks and Gillett meant that the club was soon back in play.

Score draw

The lawyers’ stories surrounding the recent takeover can be traced back to January 2008, when a Freshfields team led by banking partner Alex Mitchell advised The Royal Bank of Scotland on new loan facilities for Liverpool FC. RBS (along with US bank Wachovia, advised by Sidley Austin) had loaned Hicks and Gillett £300m to acquire the club and brought Mitchell in to advise on the restructuring of that debt. Fellow partners Ken Baird and Sean Pierce joined Mitchell later in the process.

Mitchell, who professes he wasn’t really a football fan before all this began but now keeps a firm eye on Liverpool’s progress, says that during periodical negotiations and loan restructurings, it was clear that the public interest in Hicks’ and Gillett’s running of the club gave the deal an entirely different perspective. In the same month, a group of Liverpool supporters, unhappy with how the club was being run, formed the protest group ‘Spirit of Shankly’ – a nod to Liverpool FC’s most celebrated manager, Bill Shankly. The group’s main aim, after the debt was restructured in 2008, was to encourage RBS not to refinance again in 2009, forcing Hicks and Gillett to sell the club.

After the loan terms were extended by RBS and Wachovia several times, it became increasingly clear that the owners either needed to attract further investment or sell the club in order to repay the debt. In April 2010 RBS made it clear that it would only extend its loan facility until 15 October 2010, having already been entitled to call in the debt several times before that date. It consented to a further grace period of six months from April 2010, so that a sale of the club could be finalised.

As a condition of the loan extension, Christian Purslow and Ian Ayre were installed as non-owning directors (managing director and commercial director, respectively). RBS drafted and executed a corporate governance side letter, removing Hicks’ and Gillett’s right to appoint additional representatives to the Liverpool FC board. Making Purslow and Ayre directors, along with the appointment of former British American Tobacco chief executive and current British Airways chairman Martin Broughton as Liverpool FC chairman to oversee the sale, meant that the owners were now outnumbered on the board.

Commenting on the conditions imposed by RBS on Hicks and Gillett, Slaughter and May corporate partner Mark Zerdin, who advised Liverpool FC, says: ‘It was very unusual and it worked. If it wasn’t for that then the whole process would have played out much differently. You haven’t seen the last of this type of arrangement. We’ve seen banks trying to come up with something similar in the weeks since Liverpool.’

This is confirmed by Mitchell. ‘It’s not often that people have tried to implement this type of arrangement, but I think you’ll see it more often now people know it works,’ he says. ‘We’ve had interest from outside of the world of football whether, in similar situations, people can use this type of arrangement to protect their position as lenders.’

With the 15 October deadline looming, the pressure was on to find a buyer – otherwise Liverpool FC faced the humiliation of administration and, worse still, a nine-point deduction from the Premier League. This loss of points would almost certainly mean that the team would fail to qualify for the Champions League next season regardless of performances on the pitch, devaluing the club even further. With a sale needed on the best terms possible, Liverpool FC general counsel Natalie Wignall perhaps not surprisingly turned to Slaughters rainmaker Nigel Boardman. A fanatical Gooner, Boardman is well used to major football deals and is often referred to as ‘Arsenal’s lawyer’ by the media, though he has also advised arch rivals Tottenham Hotspur on corporate work. Zerdin, who teamed up with Boardman to advise on the disposal, says that the club needed to bring in some specialist advice particularly for the sale, so Slaughters quickly signed up Purslow, a founder of private equity fund MidOcean Partners, who had worked with Boardman before. Boardman had been providing high-level strategic advice to the board before Zerdin joined the party in the summer of 2010, when a more recognisable sale process developed.

Barclays Capital, which was handling the club’s sale, contacted 130 interested parties, 13 of which entered into non-disclosure agreements. Two finalised bids were left on the table at the end: one from John W Henry’s New England Sports Ventures (NESV) and the other from Singaporean billionaire Peter Lim. NESV general counsel Ed Weiss wasted no time in instructing corporate partners Creighton Condon and Laurence Levy at Shearman & Sterling. David Chivers QC, a company law expert at Erskine Chambers, was also retained. Shearman is a trusted long-term adviser to NESV, and Condon has advised Henry for around 15 years since Henry had asked the general counsel of MTV Networks, who had just moved there from the New York Yankees, for a good lawyer that handled sports deals. Condon went on to advise NESV on its acquisition of the Boston Red Sox in 2002. Levy, an ardent Spurs fan, had also developed a taste for sports M&A, taking a lead role in advising the Abu Dhabi United Group for Development and Investment in its £200m acquisition of Manchester City FC in 2008.

‘It wasn’t just another corporate deal for a number of reasons,’ says Condon. ‘Firstly the press attention gave it a different flavour. You don’t see that very often, even in contested corporate deals – you don’t get the same level of passion. You also had a very unique situation where the equity owners had given up control of the board of directors when they couldn’t repay their debt. That gave rise to a different dynamic where you’re dealing with a board that is trying to sell the company and the equity owners having an inflated view of what that company is worth.’

Hicks and Gillett wouldn’t take all this lying down, furious that their football club was being sold at what they perceived to be a vastly deflated price. ‘I think we expected it right up front,’ says Condon. ‘Everything we’d heard from the get-go was that Hicks and Gillett had a different view on the outcome and would go kicking and screaming. We knew that, we expected that and we prepared for it.’

On 5 October 2010, a board meeting was scheduled to discuss the two finalised bids to acquire the club. Shortly before that meeting, Broughton received a letter from Hicks and Gillett informing him that Purslow and Ayre had been removed from their roles as non-owning directors on the Liverpool FC board, to be replaced by Hicks Holdings vice president Lori McCutcheon and Tom Hicks’ son, Mack Hicks. The reconfigured board would allow the owners to block any sale that they didn’t consider high enough. This move, according to Purslow, Ayre and Broughton, was a clear breach of the side letter agreed between Hicks, Gillett and RBS. An impasse had been reached.

Hicks and Gillett wanted to adjourn the board meeting for a week, putting added pressure on any deal going through by 15 October. In the end, the Liverpool FC board (namely Purslow, Ayre and Broughton), in the absence of the owners, reconvened the board meeting after an hour and continued negotiations with the two bidders. In the early hours of 6 October, they approved the offer from NESV. Then the parties steeled themselves for the litigation that was inevitably to follow.

Anfield scrap

Jamie Goldsmith, a junior barrister at One Essex Court and the son of former attorney general Peter Goldsmith, was putting his daughter to bed at 8.30pm on Tuesday 5 October when he got the call. He was instructed by Slaughters’ Efstathios Michael to team up with One Essex Court’s legendary silk Lord Grabiner QC to represent Liverpool FC against Hicks and Gillett. A conference call was scheduled for five minutes later, beginning one of the most exciting weeks of his career to date.

Liverpool FC was supporting RBS, whose legal advisers knew that Hicks and Gillett would be keen to try any tactic to thwart the sale of the club. Freshfields senior litigation partner Patrick Swain had, by now, entered the fray for RBS, having known for some weeks that things were likely to take on a more contentious hue. He had instructed Richard Snowden QC of Erskine Chambers, along with junior counsel James Potts and Ben Shaw. Broughton instructed partner Satish Khandke at specialist sports firm Couchmans as his personal legal adviser, who retained Paul Harris of Monckton Chambers for the hearings.

‘I am and have always been a Liverpool fan. It’s your childhood dream to be able to help your club.’
Jamie Goldsmith, One Essex Court

The RBS and Liverpool FC teams knew that they had to go on the attack to prevent the owners from delaying the sale, but a decision needed to be made quickly on what line to take. There was some discussion over whether pursuing a breach of company law by Hicks and Gillett in reconstituting the board unilaterally would work or whether it would be better to argue that the ousting of Purslow and Ayre from the board breached the terms of the renegotiated loan between RBS and the owners. The contractual breach was agreed as the most direct route of achieving success. ‘RBS had the strongest legal position and we supported their approach,’ says Goldsmith. ‘There were arguments whether, constitutionally, the owners could do what they wanted to do in circumstances where the club was in a difficult financial position and this debate is still ongoing. But as far as RBS was concerned, the owners had done precisely what they had promised not to do.’

On 8 October RBS, which had the agreement with Hicks and Gillett and was supported by Liverpool FC, sought a private ex-parte injunction preventing Hicks and Gillett from taking further steps to alter the constitutions of the holding companies.

With that in place RBS, again supported by Liverpool FC’s holding companies, took the very rare step of seeking a mandatory injunction on 12 October to reverse the changes the owners had made to the board.

Faced with the reconstituted board completing the sale of Liverpool FC, Hicks and Gillett in turn applied to the English court for an injunction, seeking to restrain the board from completing the sale to NESV. By now, Hicks and Gillett had changed legal advisers for the litigation. RBS and Liverpool FC sought to remove Francies and the owners’ US advisers Winston & Strawn from the case, claiming a conflict of interest as they had advised the club previously. The point was not argued and, in any event, Francies and Weil had distanced themselves from the matter.

Francies did not respond to requests for an interview but all sides involved in acting for Hicks and Gillett probably had to contend with a fair amount of abuse in what had turned into a very ugly saga. On one Liverpool fans’ online forum, there was an early thread where posters debated the merits of contacting Francies and urging him to withdraw. Other posts were less polite or reasoned.

Hicks and Gillett had by now turned to Peters & Peters litigators Keith Oliver and Jonathan Tickner, who instructed Paul Girolami QC of Maitland Chambers.

While the former owners’ legal team has kept its counsel on this matter, press reports of the court hearings are uncharitable, describing the tactics of Girolami QC as ‘desperate’ and ‘filibustering’. But all lawyers involved in the case say Girolami QC had been sold a turkey by his clients and that he fought gamely in difficult circumstances. ‘He played the hand he had been dealt very well, but he had been given low cards,’ observes NESV’s barrister, Chivers QC.

The case was to be heard by Mr Justice Floyd in easily the most high-profile matter of his career. Floyd J is a young judge who was called to the bench in 2007 after making his name as a leading intellectual property silk. Michael and Goldsmith are all quick to praise his contribution, remarking on his appropriately commercial attitude and his rare ability to deliver the most lucid and watertight judgments overnight.

On 12 October, the atmosphere in court 18 when the sides argued their cases was charged to say the least. Goldsmith describes it as being, ‘like Anfield on a European night. You felt like you had a 12th man on your side’. The room was packed not only with lawyers and journalists, but also with Liverpool FC fans, wearing club colours, who wanted to witness first hand the fate of their club. A Royal Court of Justice official told Swain she could not recall the last time a crowd was so desperate to attend court.

‘That day four bus-loads of supporters left Liverpool at 4am for the hearing,’ says Michael. ‘You couldn’t get into the court – it was standing room only. Coming out again was like a football match – there were people everywhere.’

‘Seeing the Liverpool fans massed outside the High Court and chanting was quite remarkable,’ says Condon. ‘You understand it conceptually, but seeing it for yourself was something else. The amount of emotion that was there was really extraordinary.’ Floyd kept good order throughout and it was only the press who came close to misbehaving. Clerks had to sternly warn the press gallery several times to switch off BlackBerries. However, it seemed to have little effect. Tweets and blog feeds were uncannily simultaneous. The masses squeezed into the courtroom meant that contact between lawyers was restricted. RBS’s adviser Swain says that the packed space made passing notes to Mitchell impossible. The pair had to keep scrummaging through the crowd to share information outside.

But Floyd J wasted no time the next day in delivering his opinion that Hicks and Gillett didn’t have a leg to stand on. In a 55-paragraph judgment, it took Floyd J around 45 minutes to dismantle the owners’ argument, observing that: ‘When they saw that the process was going against them, they set out to renege on their agreement. There is no basis in the case that what they did is justified.’ He ordered costs against Hicks and Gillett, and said that a board meeting to push through the sale should be convened that evening. The mood outside the court was euphoric.

Later that afternoon, Henry tweeted: ‘Well done Martin, Christian and Ian. Well done RBS. Well done supporters.’ But if anyone thought it was all over, they had seriously underestimated Hicks and Gillett.

Blind side

Michael and Swain both say they expected a riposte of some kind from Hicks and Gillett. A move to the Court of Appeal appeared most likely to delay the deal and trigger RBS’s deadline for repaying the debt. As it turned out, they tried something a little more unexpected.

The evening after the judgment, at around 5.30pm, RBS received the necessary shareholder consents from Hicks and Gillett, as ordered by Floyd J, to reconstitute the board of Kop Football Ltd, reinstalling Purslow and Ayre. A board meeting was scheduled three hours later to complete the sale to NESV. But five minutes before the meeting, at 8.25pm, RBS received notice of a temporary restraining order (TRO) obtained by the owners in Dallas, preventing the board from selling the club to NESV and preventing RBS from enforcing the terms of its loan. Hicks, a Texan, along with Gillett, had convinced Judge Jim Jordan of Dallas County Court that Broughton, Ayre, Purslow, RBS and NESV had conspired to sell the club for far below its value. Hicks and Gillett phoned into the board meeting to unveil their latest attack. The order itself arrived at 9.35pm GMT.

‘The sense that I’d got based on discussions with others was that Hicks was a bit of a fighter and we thought something would happen,’ says Swain. ‘We thought an approach to the Court of Appeal was most likely. Having said that, a Texas TRO, when Hicks is in fact Texan, was not the most unpredictable thing to do.’

The petition received by Judge Jordan makes interesting reading. Highly emotive and inflammatory language runs through it and makes the reader think instantly that it’s a good job such documents are privileged. One oft-quoted line refers to the NESV deal as an ‘epic swindle at the hands of rogue corporate directors and their co-conspirators’. The owners also argued that the refinancing deal struck with RBS to allow time for the disposal meant that RBS charged ‘extraordinary (extortionate) fees for the privilege, saddling the club with tens of millions of pounds in additional costs’.

‘It was quite extraordinary,’ says Condon. ‘I think if you weren’t in the line of fire you would have found it quite amusing. There was no merit in it whatsoever.’

It seemed to be the last throw of the dice by desperate men, but amazingly it worked. It was revealed in the UK court the next day that Hicks and Gillett had been coy about being refused an injunction to block the sale in the UK when Judge Jordan granted the TRO. However, handwritten amendments on the order by Judge Jordan sought to tone down the language. A glance at a copy of the document online shows that the words ‘solely’ are added to the repeated statement, ‘based on the allegations in the Verified Petition and the arguments of counsel’, suggesting that the judge may have been aware he had only been given half the story. Condon says that the Texas judge was concerned about adequate disclosure when he discovered Hicks and Gillett had previously tried to get an injunction in London.

As for the lawyers involved for the Liverpool FC directors, NESV and RBS, the surprise didn’t last too long. ‘My initial reaction was one of shock, then realisation that I would be up all night drafting papers,’ says Goldsmith. ‘But while I was walking back to my house it became clear that this was actually a good thing. It was a bad tactical error on the owners’ part. They could have appealed to the Court of Appeal and they might have stopped the sale going through on time. There was always a risk they would find a backer who would buy up the debt and take RBS out. To go to Texas in the manner they did was an obvious attempt to undermine the English judgment and to deprive RBS of the fruits of what they had obtained in England. The fact that the owners failed to mention that the English court had refused to grant the very injunction the owners were seeking in Texas was also very striking.’

‘The owners, from beyond the grave, are seeking to exercise with their dead hand a continuing grip on this company.’
David Chivers QC, Erskine Chambers

Despite knowing that everyone would be in court the following morning, the board meeting continued, and it was decided by a majority (Hicks and Gillett voting against) to seek a further ruling from the English court to allow the sale to NESV to go ahead.

RBS went straight back to court on 14 October, one day before the repayment deadline. This time the bank applied to Floyd J for a rare anti-suit injunction, used when a defendant issues proceedings in another jurisdiction for the purpose of frustrating English proceedings. The injunction serves to prevent the defendant from commencing or continuing the ‘abusive activities’ and does not require the English court to make any findings regarding the jurisdiction of the foreign court.

Perhaps Hicks and Gillett knew they were flogging a dead horse, as neither Oliver nor Trickner from Peters & Peters, nor Girolami QC turned up to defend their clients, instead sending a message that they had not received any instructions. Snowden QC submitted to Floyd J that the owners were guilty of the ‘most outrageous abuse of process’ and making ‘scurrilous allegations’. Lord Grabiner QC for Liverpool FC added: ‘The proceedings brought in Dallas are abusive, vexatious and oppressive.’

Both Michael and Swain are highly complimentary of a ‘cameo’ by Chivers QC, who delivered a tour-de-force argument from the perspective of the would-be buyers. ‘The owners, from beyond the grave, are seeking to exercise with their dead hand a continuing grip on this company. That is simply not acceptable,’ he said.

Floyd J played his part, delivering a blistering 35-paragraph judgment that gave Hicks and Gillett very short shrift, referring to the Texas petition as ‘unconscionable conduct on the part of Mr Hicks and Mr Gillett’. Hicks and Gillett had fallen foul of Floyd J twice in two days. This time there was no way back.

The aftermath

By the morning of 15 October, deadline day, Hicks and Gillett had lifted the Texas injunction and the £300m sale of the club to NESV could complete. John W Henry joined general counsel Ed Weiss, Condon and Levy at Slaughters’ offices to sign the paperwork shortly before the impromptu press conference in the firm’s reception.

After weeks of intense negotiations and the frantic pressure of staying up all night preparing for injunctions, no one was in euphoric party mood. Swain and Mitchell had a few quiet drinks. Michael says he stayed up that evening to watch a supposedly ‘sensational’ interview with Hicks on Sky Sports, which turned out to be the opposite. Condon says he just went home and got some sleep. The following day, Henry was unveiled as the new owner at a high-pressure match at the home of Liverpool FC’s arch rivals, Everton. Liverpool lost 2-0. The anti-climax was complete.

None of the lawyers will comment too much on Hicks or Gillett, remaining circumspect as litigation is ongoing. The former owners are seeking damages for the ‘swindle’ they argue they were victims of. When the temporary restraining order was received by RBS on the night of 13 October, the letter also contained a claim for damages approaching $1bn. At the time of going to press, RBS and NESV were due to return to the High Court in early February to obtain a judicial order upholding the anti-suit injunction granted by Floyd J. This would prevent Hicks and Gillett from bringing any further action against the bank relating to the club. The former owners will not fade away quietly, and this dispute could rumble on for some time, but the club is no longer in their hands.

Despite future litigation hanging over the saga, the lawyers agree that it was one of the most high-profile episodes of their careers. ‘This is definitely the best case I have done,’ says Goldsmith. ‘It has a personal angle for me because I am and have always been a Liverpool fan – my parents are Liverpool fans. It’s your childhood dream to be able to help your club, in even a small way, so that definitely puts it at the top. It wasn’t the most legally complex matter but easily the most exciting case I’ve done.’

Floyd J left his mark as a highly capable, commercial judge. Michael was part of the Legal Business Dispute Resolution Team of the Year in 2010 for work for the Treasury in the Northern Rock judicial review, but can only recall his work for Carlton Communications and Granada in the restructuring of ITV Digital and the dispute over the rights that ITV Digital had bought from the Football League, capturing the public imagination so vividly. Even experienced campaigners like Swain cannot recall a similar matter where friends and colleagues took such an interest. E-mails arrived in their hundreds, from unsolicited, but delighted, Liverpool fans congratulating him on a job well done or good-natured jokes during the process from Everton fans in the office.

‘The level of interest was extraordinary; it wasn’t just another corporate deal,’ says Shearman’s Levy. ‘After the deal completed I’ve never had the volume of random e-mails I received from all sorts of former colleagues or clients or whatever who were Liverpool fans saying “Thank you so much, well done!”.’

The clients themselves were delighted with the effort the lawyers put in against considerable opposition. Richard Dorman, director of the global restructuring group at RBS says: ‘The transaction was completed by the 15 October deadline; this would not have been achieved without the support, guidance and leadership throughout from the team at Freshfields. This result was a satisfactory outcome not only for the bank, but also the fans and for the club who can revert to making news on the pitch rather than off it. An excellent example of teamwork and leadership in business where the parallels to sport are so often drawn the other way.’

It was perhaps inevitable, given the number of dramatic nights seen at Anfield over the years, and the vocal passion of its fans, that no deal involving Liverpool FC would be without histrionics. As a line in the famous Liverpool anthem You’ll Never Walk Alone goes, ‘At the end of the storm, there’s a golden sky’. LB

mark.mcateer@legalease.co.uk