Everton interim CEO shares takeover update and confirms Farhad Moshiri move

Everton interim CEO Colin Chong has revealed that The Friedkin Group’s (TFG) planned takeover of the club is “progressing well”. TFG remain on course to acquire the club before the end of the year.

In a letter sent to club shareholders, shared by The Esk, a prominent blogger on the club’s finances, Chong shared an update on the situation around associated party transactions, confirming reports from last month that outgoing owner Farhad Moshiri would be capitalising his loans before the January 11 deadline so that the club would not be impacted by the new APT rules that were passed at November’s Premier League shareholders meeting.

The Guardian reported last week that Moshiri had committed to converting his £451m in loans to the football club into equity, something that had been anticipated from the start, but that he would be willing to do that by January 11 if the TFG deal had not reached completion by that point. Sources close to the TFG bid maintain that the timeframe of mid-December for completion remains the target.

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The reason for the move was related to the new associated party transaction amendments which have now been voted through by the Premier League following a legal challenge by Manchester City.

City argued that shareholder loans should count towards APT via the fair market value test, which means interest-free loans from owners would instead have the Bank of England’s base interest rate attached for assessment purposes. In Everton’s case that could result in a liability of more than £21m for the football club with the BoE interest rate currently at 4.75%, and that could have been problematic from a Profit and Sustainability Rules position.

But in committing to convert his loans to the club into shares before the deadline, even if the TFG deal hasn’t come to a successful conclusion by January 11, the club would be shielded from incurring such a cost burden.

In the letter to shareholders, Chong stated: “All parties are working to secure the necessary regulatory approvals to complete the transaction, and that is progressing well.

“It has not been appropriate to provide information on the takeover whilst the regulatory approval process continues, but I am happy to share with you that TFG has demonstrated a high level of professionalism and a clear, focused approach throughout this process. This has ensured a smooth preparation for the transition of ownership for everyone involved at the club, and provides a clear indication as to the future trajectory of the club, which I’m sure, as a shareholder, you will welcome.

“In accordance with the club’s Articles of Association, a letter will be sent to all shareholders via post ahead of the completion of the sale asking you to vote on all company resolutions required to advance the transaction to completion. The majority shareholder will be voting in favour of each of the resolutions presented.

“One of the resolutions shareholders will be asked to vote on will ensure the club will not be adversely affected by the new rules approved by the Premier League shareholders last Friday in respect of Associated Party Transactions (APT). The changes have been put in place following an Arbitration Panel’s ruling earlier this year, which made clear shareholder loans needed to be brought within the scope of APT within the Premier League’s rules.

“For clarity, the impact of the rule amendments means that, going forward, all loans any shareholder wishes to provide a club will be subject to a Fair Market Valuation (FMV) assessment, and (regardless of the terms of the loan) market interest rate and costs will be applied to the loan facility for the purposes of a club’s PSR calculation – or any future financial sustainability calculation mechanic.

“The rule changes also mean any club with a current shareholder loan balance (as we have), must take steps to ensure such loans are capitalised on or before 11 January 2025, to avoid these loans potentially having a negative impact on a club’s PSR calculation for the accounting period 2024/25.

“In addition to the resolutions around change of control you will be asked to approve, this will be the basis of one of the resolutions included in the formal communication you will receive through the post in the coming weeks.

“As a result of these changes, shareholder loans will no longer provide a PSR neutral route for the injection of funds into a club, leaving equity investment as the only means through which additional funding can be provided without negatively impacting investment in the playing squad. The APT rule amendment requires a capitalisation of shareholder loans which, in turn, will result in the creation of new shares in the Club.

“I can assure you the club, our current majority shareholder and TFG have put in place a structure for the takeover agreement that ensures these rules do not negatively impact the club’s PSR position and will enable TFG to continue to invest in the club and in the team in the years ahead.

“I am aware there is a great deal of anticipation about the vision and plans of our prospective new owners. It is important to explain that, out of respect for the ongoing process, it would not be appropriate for TFG representatives to communicate directly with shareholders at this time.”

TFG agreed to purchase Moshiri’s 94.1% majority shareholding in Everton back in September following the demise of a bid by the now collapsed 777 Partners investment firm to acquire the club. It was one that had rumbled on for several months and seen £200m worth of debt added to the balance sheet from 777’s lenders, A-CAP, which had been used for working capital.

The debt has remained a thorny issue and had been a reason for TFG stepping away initially from takeover talks before returning after legal advice had eased some concerns. Houston-based TFG remains confident that any issues over the debt that arises from a live civil case in New York where A-CAP and 777 Partners are involved in a legal battle with London-based Leadenhall Capital, won’t be so impactful as to knock the takeover off course.