Frasers Group pull out of woods CBS Arena

Article posted by Coliseum, November 25^th, 2022

Image: Warwickshire CCC

Mike Ashley’s Frasers Group has taken over the lease of the Championship team – the Coventry City Football Club’s home ground – the CBS Arena in Coventry, England (UK) – after the stadium’s operators were placed into administration.

‘Evening Standard’ stated that the sportswear tycoon’s retail group secured the CBS Arena lease after the appointment of administrators paved the way for the completion of its £17 million purchase of the stadium operators’ business and assets.

Shirebrook (UK)-based The Frasers Group plc is a British retail, sport and intellectual property group, named after its ownership of the department store chain House of Fraser. The company is best known for trading predominantly under the Sports Direct brand which operates both physical outlets and online.

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The Coventry City Football Club is a professional association football club based in Coventry, West Midlands, England, UK. The team currently competes in the Championship, the second tier of the English football league system. The club plays at the 32,609-capacity Coventry Building Society Arena.

The Coventry Building Society Arena (often shortened to CBS Arena or just simply Coventry Arena, and formerly known as the Ricoh Arena) is a complex in Coventry, England. It includes a 32,609-seater stadium which is currently home to football team, Championship club Coventry City F.C. along with facilities which include a 6,000 square meters (65,000 sq ft) exhibition hall, a hotel and a casino.

Earlier this month, the Arena Coventry Limited (ACL), Arena Coventry (2006) Limited (AC06) and IEC Experience Limited said they had applied for administration but the CBS Arena would remain open.

‘Evening Standard’ further stated that the approval of administrators by a specialist judge in London on November 17^th was made despite a last-minute bid by lawyers representing local businessman Doug King to delay court proceedings to allow for consideration of his potential rival offer of £25 million.

The court proceedings came the day after the ‘Sky Blues’ owners Sisu Capital agreed to sell a majority 85 percent stake to King in a deal which will leave the club debt-free.

The High Court was told that, on appointment, administrators sought to “effect a pre-packaged sale of the companies’ business and assets to entities controlled by Frasers Group plc”, with the deal covered by an “exclusivity” agreement.

Making the administration orders at 1.22 pm, the Insolvency and Companies Court judge Sebastian Prentis said the Frasers Group deal was the only “viable prospect” to prevent the group of companies “entering immediate insolvent liquidation”.

Judge Prentis explained to the court that an on-hold deal between the Frasers Group and the CBS Arena operators, which included the pre-payment of a £1.2 million exclusivity fee, had already been signed and would be completed upon the companies entering administration.

He said, “It is the bird in the hand, and more than that, it’s the product of many months of trying to find financial support for the group. It’s the only, on this evidence, viable prospect for this group not entering immediate insolvent liquidation.”

The judge said he respected the “ardor” of King’s offers, which included potential funding to keep the companies operating in the short term, but added he did not consider there was “enough substance” in what his lawyer had said in court “to allay even the immediate fears over how this group can continue to trade”.

Rajnesh Mittal and Andrew Sheridan of the FRP Advisory Trading Limited were appointed as joint administrators of the arena companies.

The group of companies operates from the Coventry Building Society Arena, the freehold of which is owned by the Coventry City Council, the court was told.

The ACL is a wholly-owned subsidiary of Wasps Holdings Limited, which went into administration last month, leading to the English rugby club’s entire playing and coaching staff being made redundant.

AC06, a wholly-owned subsidiary of ACL, holds a 250-year lease of the arena, which it subleases to the ACL, which in turn subleases part of the stadium to the Coventry City and other tenants and receives revenue from naming rights.

IEC is the trading vehicle for conferences, events, retail, car parking, and the operation of the Hilton hotel on the site.

Simon Passfield, representing the operator companies, told the court they “cannot afford to trade beyond today (November 17^th)”, with there being only around £1,200 jointly available in bank accounts at the time of the hearing and the companies potentially facing a “black hole” of some £465,000 in payments which was due recently.

In written arguments, he had said if the sale to the Frasers Group could not be completed on November 17^th, then “there will be no available funds to allow the companies to continue to operate or engage in a further marketing process and, in consequence, it will be necessary for the companies to enter immediate compulsory liquidation”.

He warned in the court that liquidation would be “terminal” for the companies and said if the administrators were not appointed then the Council might forfeit the stadium lease and the employees would be made redundant.

During the November 17^th hearing, Nigel Dougherty, representing King and the Coventry City owners Otium Entertainment Group Limited, sought to delay the companies entering administration and secure funding talks between the Directors and King.

He told the judge that King purchasing the arena leasehold would provide a “long-term solution to the club home ground” and that his potential £25 million offer, subject to due diligence, was “much higher” than the Fraser Group deal and presented a “potentially significant higher return for creditors”.

He said the offer was not “illusory”, was made “on the basis of funding that is available and could be put in place to consummate that deal” and that discussions over interim funding could “remove the specter that the companies are heading to a crunch point”.

Dougherty also said King indicated “his willingness to extend financial support to the operation of the arena” such as employees’ wage bill in order to allow for the consideration of his offer.

King’s offer had “political support”, Dougherty said, adding there was a “sense of frustration” over administrators appearing to be “hell bent” on pursuing the deal with the Frasers Group.

Urging discussions, he said, “If there is a willingness to dance, we will tango”.

However, after a short break in proceedings, Passfield told the court that “the companies cannot have any discussion with King because of the exclusivity agreement”.

If the court orders were not made, then the administrators did not wish to be appointed as they “cannot be satisfied that the purpose of administration will be achieved”, Passfield said.

Stephen Robins KC, for the Frasers Group, said that if the administration orders were not made then its acquisition offer would be withdrawn.

He said this was “not an attempt in any way to hold this court to ransom”, but it was a commercial decision, with his client “not prepared to throw good money after bad and will instead call it quits”.

The court heard that as of July 2021, the ACL had net liabilities of £27.174 million, AC06 had net liabilities of £30.557 million and IEC had net liabilities of £5.54 million.

Available assets after payments made on November 17^th were a little over £1,000, with payments due in the near future of £124,000 for energy, £127,000 over VAT and £50,000 for PAYE, the court was told.

Passfield said in written submissions that the administrators had previously received four other offers to purchase the arena operating companies.

Frasers Group’s £17 million offer, less the £1.2 million fee already paid, was agreed on the basis the sale was free of security interests, including those relating to a 2015 bond issue by Wasps Finance plc, the court was told.

As a result of the November 17^th ruling, some £13.5 million would be paid to bondholders, amounting to 30 pence in the pound, as opposed to “nothing” or a “much smaller return”, the judge said.

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