Trust reaches resolution arising from the 2016 sale of the club
Dear xxxxx,
After advanced discussions, the Trust received a further improved offer from both the current and former majority shareholders which was formally put to the full Board for their consideration. This enhanced offer contained components that are better aligned with the aims of the Trust. Around the same time the Trust Board was presented with the final funding/insurance documentation, for consideration. This contained some aspects within its final terms that could potentially impact on one of the Trust Board’s responsibilities - to protect the Trust from financial exposure.
The Trust Board then held lengthy discussions and sought further input from our legal team on the available options. After weighing up all the pros and cons of the improved offer against the alternative of proceeding with the legal case, the Trust Board unanimously decided to accept the offers from both the current and the former majority shareholders, rather than to proceed with legal action.
The Trust currently holds just over 21% of the shares in the club. Over the coming months the Trust understands that convertible loans that have previously been made to the club will be converted into equity (new shares). This conversion (which affects all existing shareholders) will “dilute” our 21% shareholding to just above 15% of the shares in the club. The Trust does not presently have the financial resources to match the injection of equity that would be necessary to maintain our current shareholding. The Trust has long anticipated that this dilution would occur once additional funding (new investment in the form of convertible loans) were converted into equity in the club.
Against this background, the settlement offer that has been accepted by the Trust Board is broadly as follows:
- 5% of the Trust’s remaining shares (approximately one-third of the shares retained post dilution) will be permanently protected against further dilution. They will become “Class A” shares and will be anti-dilutive and permanent, and cannot be sold. These will also have 5% voting rights in all decisions taken by the Club Board, both while the club is owned by the current majority owners and by any future owners. The Trust will also have 5% dividend rights in the event of dividends being paid by the club in the future.
- In respect of the Trust’s remaining ordinary shareholding (expected at circa 10% post dilution), these too will have voting and dividend rights (relative to % ownership). In the event of further investment in the club that the Trust decides not to participate in and therefore results in dilution, future voting and dividend rights attached to these shares would reduce in line with the Trust’s % ownership level.
- The Trust will have tag rights for its remaining expected circa 10% unprotected shares so that, as and when the current majority owners sell their controlling interest in the club, the Trust has the option to participate in such a sale of its remaining unprotected shares should it elect to do so.
- The Trust will also have a no-drag provision in place, so that the Trust is not obligated to sell its remaining unprotected shares as and when the current majority owners sell all or part of their shareholding in the club.
- The Trust will shortly receive a settlement payment of £0.5 million.
- In addition to the settlement payment and while the club is owned by the current majority owners, the Trust will receive a further payment of £0.5 million on promotion to the Premier League and a further £0.5 million for each season thereafter that the club is in the Premier League until an additional total of £1.5 million has been paid.
- If the club is promoted to the Premier League and the current majority owners sell their controlling interest in the club at any time during the club’s first season in the Premier League, then the Trust will receive one payment of £0.5 million as described above as well as a second payment of £0.75 million at the time of sale. For clarity, this means the Trust would receive a total of £1.25 million in this scenario.
- The Trust will be guaranteed on a permanent basis a Supporter Director on the Club Board who will continue to enjoy the same full rights and duties as other Club Board Directors. The Trust will also continue to be granted a Club Board observer (currently termed Associate Director) who will be invited to attend Club Board meetings and will also receive the same Board information as Directors of the Club.
- As part of the agreement the Trust will in future work alongside the Club to implement new initiatives aimed at encouraging more supporters to become Trust members.
The relevant elements of the settlement agreement have been documented in a new Shareholders Agreement and new Articles of Associations for the football club.
We appreciate that the decision of the Trust Board to accept the above offer and not initiate legal action is one that some of our Trust members may not have anticipated. As a Trust Board we have always been very conscious of the need to protect the Trust. While we understand the desire of some supporters to see the Trust take this shareholding dispute all the way to court, the Trust would never take this step unless it were financially responsible and in the best interests of the Trust. Legal action is complex, expensive and uncertain.
The Trust Board would ideally have preferred to have been in a position to consult formally with our members on:
(a) Whether to accept the final negotiated offer from current and former majority shareholders, and move forward in a constructive manner with the majority owners; or
(b) To proceed with legal action (but with the risk of exposing the Trust to potentially consuming all of its funds and having to find an additional funder to see the case through to its natural conclusion). Note –the Trust would also have had to advise members that proceeding with this option would in all probability resulted in a period of 2-3 years of litigation that would significantly undermine the Trust’s ability to influence the running of the football club.
After lengthy discussions between our legal team and the Trust Board if was decided that further consultation and a vote from our members was not possible on this occasion.
This was primarily due to the fact that should details of the final settlement and funding/insurance offers become public the Trust would be in breach of a number of confidentiality aspects and in all likelihood face the real prospect of losing our funders/insurers so severely weakening our position while discussions with the current and former shareholders were still ongoing. The loss of our commercial funder would have left the Trust reliant on its own resources with which to bring legal proceedings.
We hope therefore our members can understand the considerations of the Trust Board and our legal team regarding the need for confidentiality. Unfortunately taking any other course severely risked jeopardising the positive outcome that we are announcing today.
For the awareness of members, there were also discussions between the Trust and the current owners for the purchase of some of the Trust’s remaining shareholding but as no agreement could be made on their sale value no shares were sold. The Trust therefore retains its ordinary shareholding of circa 10% post current pending dilution (i.e., excluding the 5% of our shares that have now been permanently protected) as part of the agreement not to proceed with legal action.
Considering all the factors involved, the Trust Board firmly believes the decision that has been made to settle the dispute arising from the 2016 sale of the club is in the best interests of the Trust and its members. It also means that the club and the Trust can move forward in a constructive and collaborative partnership, which would not have been achievable had we become opposing parties in High Court litigation. The settlement agreement allows the Trust to proceed with its core aims and ambitions, as well as to ensure that the Trust is properly protected in the years ahead.
On Thursday 17th February at 7pm we have arranged a virtual members’ forum via Microsoft Teams to allow members to present any questions to the Trust Board and its legal team. If you’d like to attend please send your full name, address and any questions you’d like to submit in advance to:
communications@swanstrust.co.uk
Swansea City Supporters’ Trust
15th February 2022
www.swanseacity.com
