Phil Hay: Where next for GFH and Leeds United?

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There was always a chance Cellino’s bid for United would be blocked. Now everyone is waiting to see if GFH have a Plan B. Phil Hay reports.

Gulf Finance House should have known from the start that in Massimo Cellino it was dealing a wildcard to the suits and solicitors of the Football League.

Around the time that the Bahraini bank began discussing the sale of Leeds United to Cellino, a background report on the Italian businessman was commissioned and written on GFH’s behalf.

Called ‘Project Athena’, it laid out convictions, allegations and incidents involving him; evidence to suggest the Football League might find a reason to wave the red flag.

The issues highlighted were considered too spent, too unsubstantiated or too frivolous to warn GFH off so a £25m deal was done but the guilty verdict handed down to Cellino by a Sardinian court last week, convicting him of tax evasion, meant GFH’s standards of fit and proper mattered less than the Football League’s.

The writing was on the wall on Sunday afternoon when Cellino told a journalist he was “sick of this” after two months spent waiting for approval.

Recent interviews with Cellino made him sound tired and beaten; no longer the bombastic man who talked about Leeds as his “Ferrari” and Cagliari – the club he owns in Italy – as his “Fiat 500”.

He made that comment in the days when the significance of his failure to pay tax on a luxury yacht was still to register in England and GFH thought he was home and dry. By Sunday he could see that rejection was coming.

Cellino has the right to appeal his failure of the Football League’s Owners and Directors test but only 14 days to do so, and he was categorical two weeks ago in saying that he would take the governing body’s decision as final.

His lawyer in Italy, Giovanni Cocco, and the firm representing him in the UK – Mishcon de Reya – were asked last night whether Cellino would lodge an appeal.

Cocco said Cellino was being advised to contest the Football League’s verdict but “feels very worn and disappointed.” Mishcon de Reya did not respond.

Whatever it has in the way of contingency plans, GFH will not place hope in Cellino persuading the League to back down.

The League’s executive took extensive legal advice on his conviction for tax evasion and found that his offence could “reasonably be considered dishonest”.

That judgement leaves the bank with two options, both of which it is likely to consider – repackage the sale of a majority stake to Eleonora Sport Limited minus Cellino, or sell to a different buyer altogether.

A short statement issued by Leeds yesterday said the club – or GFH, whichever party official statements speak for these days – were in discussions with the Football League and Eleonora Sport about ways to “find a solution that is suitable to all parties.”

Cellino, 57, is one of two directors with Eleonora Sport, a British company named after his daughter which he planned to use to buy a 75 per cent shareholding in Leeds.

There is no doubt among officials at the Football League that this was his takeover, initiated by him, dictated by him and financed by him.

GFH has a different view: that the cash is coming from a Cellino family trust and is not singularly controlled by Massimo.

There is a theory on the seller’s side that an alternative arrangement could be found, sidelining Cellino from the deal completely and handing control of Eleonora Sport to others.

That strategy stands every chance of falling foul of Football League rules governing ‘shadow directors’ – people who have nothing to do with the club in name but hover in the background, calling the shots from a distance.

Cellino is effectively banned from exerting any significant influence in the boardroom. Other family members would been seen as a surrogate for him.

On that basis, yesterday’s decision from the Football League was GFH’s cue to actively seek new bidders.

The bank is aware of one group of alternative buyers who made themselves known to the public many months ago and may be aware of others who have not.

In the past week and anticipating that Cellino’s takeover would fail, legal representatives of Mike Farnan’s Together Leeds consortium have attempted to draw GFH into negotiations about the sale of a majority stake.

There have been no discussions yet but Together Leeds – a group which includes Welcome To Yorkshire chief executive Gary Verity and the ex-Hull City chairman Adam Pearson – are expected to declare their position and announce their intention to bid for the club in the next 24 hours.

Back in January when Cellino finalised his buy-out of Leeds, Together Leeds said they were backed by “institutional funding” as opposed to independent wealth.

The consortium now claim to have personal cash behind them, though detail about their plan and financial strength has not been given.

One known aspect of the unsuccessful takeover offer submitted by the group in November of last year was that they intended to buy back Elland Road from its private owners by mortgaging the ground.

Formal talks between GFH and Together Leeds, assuming any materialise, will not be simple. There is an inherent belief on the part of the bank that Farnan’s group lack credibility and the necessary money to buy United. GFH has shown no desire to engage them.

The relationship between Together Leeds, GFH and David Haigh – United’s managing director and until recently, employed by GFH’s private equity arm – has been bitter, aggressive and political for months, with legal letters exchanged between the two camps.

There is no possibility of Together Leeds – or many other bidders for that matter – matching Cellino’s purchase price.

Even staunch opponents of the Italian described his £25m bid as “top dollar” for a club who are losing money, building up debt, stuck in the Championship and renting their stadium and training ground.

The Football League had no problem with Cellino’s wealth or his plan to fund Leeds; it was simply unwilling to turn a blind eye to tax evasion.

It spelled out the case against Cellino in a lengthy judgement yesterday morning.

Some at Elland Road think GFH has other options; prospective owners hidden away who it will turn to now that Cellino’s bid is fatally flawed.

There are no names and no indication of how long another takeover would take but there is a sense of the process returning to the starting line, of the clock resetting.

At no stage have Together Leeds had the chance to complete full due diligence, and United’s financial situation now is not what it was six months ago or even at the turn of the year.

The club have borrowed more money in the past few months and lost more money too. Cellino, who provided some of the cash, was blissfully untroubled by any of that.

A little known detail of his contract with GFH is that Cellino, or Eleonora Sport Ltd, agreed to fund the United for the six-month period after his takeover was first agreed.

That provision still applies, though Cellino no longer has much motivation for abiding by the terms of the deal.

He would be paying now to support a club who the Football League won’t allow him to buy and for all his remarks about preventing harm coming to Leeds, he owes them nothing.

His time and his investment has been for nothing, or so it seems.

There was an elephant in the room throughout this saga – how GFH would react if Cellino was rejected; how it would fund Leeds and what it would do next.

The bank and its associates react angrily to talk of administration at Elland Road, implying that insolvency is the quickest way to lose the money it has ploughed into United.

GFH will tell you that as an organisation it has cash and can afford to pay the bills at Leeds month-to-month; for whatever reason, it has chosen to allow others to do so this past year.

If that is true then life continues as it did before, with United in depressing, unproductive waters but facing no terminal threat.

If GFH is bluffing, the Football League’s decision has called it.

And in the eyes of the public, all bets are off.