Leeds United: Problems mounting for owner Cellino - Hay

Massimo Cellino
Massimo Cellino
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When we first met Massimo Cellino on Tuesday, before he began his round of media interviews, he pointed to a folder on his desk. It was a couple of inches thick and contained a stack of legal claims against Leeds United, some incurred on his watch and other left for him to inherit.

When we first met Massimo Cellino on Tuesday, before he began his round of media interviews, he pointed to a folder on his desk. It was a couple of inches thick and contained a stack of legal claims against Leeds United, some incurred on his watch and other left for him to inherit.

He did no due diligence on the club’s affairs before completing his takeover but he knew he was stepping into a minefield of financial disputes and broken agreements. What he didn’t expect was that seven months later the catalogue of cases would be as heavy as it is. Like bad pennies, they always turn up – and yesterday, solicitors Ford & Warren began High Court proceedings over costs relating to an age-old matter involving Ken Bates and Melvyn Levi.

This is not going well for Cellino. You know that because he’s saying so himself. The football is a worry and the rest is up in the air, incomplete or unresolved.

On Tuesday he spoke like a man who was getting nothing done: no repurchase of Elland Road and no understanding with Gulf Finance House. No positive dialogue (let alone peace) with the Football League.

Cellino thought he had found solutions and compromises but the problems are lingering; on his mind and on his case. The Italian does a good rope-a-dope act, mimicking a deflated man, but when he says he’s losing sleep at night, he probably is. In his shoes you would.

Gulf Finance House

United’s former owner and minority shareholder is an absent partner. It has two representatives on the board at Leeds – Salem Patel and Salah Nooruddin – and holds the right to two executive seats at each game but the bank never uses them or shows its face.

Cellino had no problem with GFH retaining control of a 25 per cent stake while it left him to run the club as he pleased but their relationship has been strained by the Italian’s attempt to alter the Share Purchase Agreement (SPA) they negotiated in April.

It was, by any estimation, a good deal for GFH. Cellino agreed to pay a fee of £11m for the club and said he would service short-term debt of £10.5m and long-term debt of £13.5m. GFH stood to take £35m from him while retaining shares for a future sale.

For Cellino and Leeds, the SPA meant regular payments to the bank. Of the £11m takeover fee, Cellino paid £1m in February and £5m on completion of his buy-out in April. The last instalment of £5m is due by December 14, an obligation Cellino will meet through gritted teeth next month if he meets it at all.

The debt repayments were also structured. Under the terms of the SPA, none of the long-term debt is due until Leeds return to the Premier League. Even then it will be met in two instalments. But the short-term liabilities fall on fixed dates: £2m by December 2015, £2m by December 2016 and £6.5m by December 2017.

In July, Cellino told GFH that he wanted to revise those terms, claiming forensic analysis of United’s accounts during the bank’s short time as owner had shown serious inconsistencies. He proposed that GFH waive all of the short-term debt owed to it, freeing the club from any debt repayments in the Championship and providing more funds for investment.

GFH appeared to have accepted his offer in August, saying the revised deal should be seen as a “recapitalisation of the club.” But Cellino admitted this week that the new SPA is still unsigned and a statement from GFH gave the impression that the bank is no longer co-operative.

“GFH sold the club to Massimo Cellino under specific terms, which he is now trying to renegotiate,” the statement read. Lawyers representing both sides are believed to have met at Elland Road on Thursday but the delicate truce between them is weakening again.

Elland Road

Having promised to buy United’s stadium this month, Cellino is resigned to going back on his word. He says he has the money to fund the £16m repurchase – a claim only he can vouch for – and blames the impasse over the SPA with Gulf Finance House for delaying the buy-back.

His argument is this: GFH manages a 25 per cent stake in Leeds but is contributing no money to the running of the club. In effect, the bank is waiting to cash-in on its shares if and when United are promoted from the Championship.

The market value of the club would increase substantially in the Premier League but in the Championship, buying Elland Road is the best way of increasing the club’s appeal to investors. GFH is unwilling to bear any of the buy-back cost but the potential value of its stake would rise once ownership of the ground returned to Leeds.

Cellino covered part of the price through the £10.75m sale of Ross McCormack to Fulham and he planned to finance the rest with a mortgage. He soon discovered that United’s credit history gave the club no chance of loaning money via conventional borrowing and realised that his only way of buying the ground was by putting up the remaining amount himself.

Assuming he has sufficient cash at his disposal, he is patently reluctant to spend it while he and GFH are arguing over a revised SPA. In his head, he would be paying money to increase the value of GFH’s shares while the bank itself sits back and does nothing.

GFH said on Tuesday that it had only agreed to McCormack’s transfer because it believed the fee would by used by Cellino to buy the ground. That comment is disingenuous. While the original SPA requires the Italian to seek GFH’s approval for matters like the repurchase of the stadium, he is not obliged to consult them on transfers. And the bank has no reason to obstruct a deal for Elland Road – provided it does not have to stump up any cash.

Red Bull

After rumours of a takeover bid last weekend, Red Bull publicly ruled out an offer for Leeds and Cellino said he has no interest in selling. So that might be that.

But what has become apparent is that the soft drinks firm is investigating opportunities to force its way into English football by assuming control of a sizeable English club.

Representatives from Red Bull are rumoured to have attended United’s 2-1 loss to Wolves and they are known to have attended a meeting at Elland Road last week. Either side of that meeting they took in a number of other domestic games, including one at Everton and another at Old Trafford.

At present, all the action is in Leipzig – the home of RB Leipzig – where discussions are taking place about the company’s next move. Sources close to Red Bull think an offer for Leeds, if it actually comes, will be made in the next three to four weeks. But it remains to be seen if this story has legs.

The Football League

The Football League’s board discussed Cellino’s ownership of Leeds at a meeting on Thursday but the club are yet to be told of any developments.

As this column revealed last month, the League has a short timeframe in which to make a fresh challenge against Cellino over the tax conviction imposed on him by an Italian court.

Under UK law that conviction will be spent in March of next year, rendering it irrelevant in the eyes of the League.

The governing body only bans owners and directors on the basis of unspent convictions so it has four months to make an issue of this case.

At present the League is without a copy of the court judgement it needs to determine whether Cellino’s tax offence was dishonest. Its suspicion that Cellino is withholding the document (a suggestion Cellino denies) could lead to misconduct charges against him – and potentially an order that he cut his ties with Leeds.

Ultimately, the League has the power to suspended United’s golden share if the 58-year-old fails to comply.

Sources close to Cellino, however, say he is aware of no such charges, even after Thursday’s meeting, and plans to fight fire with fire.

So it continues.

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