Financing an M and A transaction and the impact on the rams

[general counsel]

Lets all keep one other thing in mind regarding the sale of the Rams. It is highly unlikely that Khan is paying all cash for the team. Deals like this are done with leverage (borrowed money) in addition to equity (actual cash out of the buyers pocket). If khan is financing this deal, his commitment letter from his lenders willl have both an outside date to get the deal done and a MAC clause (material adverse change, which gives the lender the right to walk away and not fund).

Here is one way kroenke can wind up with the Rams without a long drawn out court fight. Khans lenders get nervous because they dont want to sit around through what might appear to be a lengthy court battle. They either pull the debt commitments or raise the pricing. We have an expression in the deal business "Time kills all deals" and that could be part of what kroenke is banking on here.

Again, tons of missing information, including what the contract between khan and chip provides regarding kroenke and the other reps and warranties, but since we spend a ton of time on this board speculating about football matters, i thought it would be fun to put some mergers and acquisitions spin into the discussion.

The odds of khan writing a 700 million check all cash without financing are very very low. Therefore, how the lenders react to the situation is highly likely to have a material impact on how this plays out.

ramming speed to all

general counsel

[HUbison]

Re: Financing an M and A transaction and the impact on the rams

GC, I agree with your thoughts. My only wonder is what benefit would Kroenke receive by queering the deal between Khan and his lender? Unless Kroenke is sure (or willing to roll the dice) the NFL will give him an exemption on the cross-ownership issue, the removal of Khan's financing instrument only moves the team back to square one.........which doesn't help his 40%, in my opinion.

[HUbison]

Re: Financing an M and A transaction and the impact on the rams

Another thought on this......

.....I dug up an older Post Dispatch article that stated the sales agreement for the kids' 60% to Khan is based on a franchise value of $750 Million.

$750 Million. That's an 18% discount from the franchise value as determined by Forbes just a few months earlier.

Since Kroenke can match the deal, I wonder if he simply saw a deal that was too good to pass up. Using the Forbes value, he would have to write a check for about $550 Million. Using the sales agreement, his check would only be for $450 Million.

Maybe that $100 Million in savings was just too much for him to no at least attempt to buck the NFL's rulebook?

[Scidog68]

Re: Financing an M and A transaction and the impact on the rams

I don't normally engage in wild-theory-tossing, BUT... What if, and stay with me here, what if Stan Kroenke is well aware of who is backing Khan's bid, and knows they will bolt at the slightest hesitation in concluding this transaction? Stan and Shahid have spent time together. Perhaps Stan, as a Sports Guy, has reservations about Khan and his ability to support this franchise in its rebuilding, and has taken a stand that he KNOWS will affect Khan's financial backer's confidence?

Look, if I owned 40% of a business and the controlling interest was being passed to someone who I felt wasn't going to do MY SHARES any good, I might want to do something about that...ya' know?


Pure conjecture, of course.

[general counsel]

Re: Financing an M and A transaction and the impact on the rams

Sci Dog,. typically, minority shareholders dont have the kind of rights that you are referring to (ie the ability to impact a sale or make business decisions). Shareholders agreements can have different provisions, but as a general rule, your rights as a minority shareholder are very limited.

Bison, you are of course correct that adversely impacting khans deal doesnt help kroenke if the league wont sign off anyway. However, its possible that if Kroenke is the best available viable bidder capable of closing quickly, the league may be more inclined to approve his bid, since the league knows that the uncertainty surrounding the ownership situation is bad for the rams and bad for the league. It could impact the league's appetite for getting into a legal fight with kroenke over the situation, because that legal fight will itself create more uncertainty and unrest, making it even harder to successfully run the team.

Remember, kroenke would be effectively blocking khans deal, but more importantly, he is preventing any other buyer from coming in with a chance to buy the team without dealing with Kroenke and the legal issue. That is a big time chilling effect on the sales process, terrible for chip and one of the reasons why these type of buy sell provisions for minority owners are very very rare indeed.

Thus, the simple answer to your question of what does kroenke have to gain is that he potentially makes himself the only really viable bidder unless the league wants a full scale legal battle which could go on for years and leave the rams in terrible straights while all that expense and uncertainty drags on.

ramming speed to all

general counsel

[MoonJoe]

Re: Financing an M and A transaction and the impact on the rams

Thus, the simple answer to your question of what does kroenke have to gain is that he potentially makes himself the only really viable bidder unless the league wants a full scale legal battle which could go on for years and leave the rams in terrible straights while all that expense and uncertainty drags on.

general counsel

BAM! Then he gets the balance of a team he is already well vested in for a bargain price with little effort. And if he decides to sell in the future when things turn around, he gets a nice profit as well. That's why he is a successful business man!

[live4ramin]

Re: Financing an M and A transaction and the impact on the rams

And didn't he marry a Walton? That's smart too.

[HUbison]

Re: Financing an M and A transaction and the impact on the rams

And didn't he marry a Walton? That's smart too.

He's worth $2.7 Bil. She's worth $2.9 Bil.

Can you just imagine those anniversary presents? "Here, honey, I bought you a life-size sculpture of you made of diamonds." "Oh that's wonderful, baby, I bought you an island the size of Nebraska."

[general counsel]

Re: Financing an M and A transaction and the impact on the rams

Hubison, keep in mind that the forbes valuation is pure speculation, like any other "price guide" type information. Any asset is worth what someone will pay for it.

However, you make an excellent point, The US (and global) m and a market has been in the tank for 18 months. Any agreed upon valuation even as recently as three months ago is likely to be higher today, at least to the extent that the target company (ie the rams) is a growth business. A primary driver of this is the credit markets, which have loosened up considerably and are likely to continue to improve. Thus, i think the "bargain" could be as simple as overall better economic conditions in the future, we makes many assets cheap now, relatively speaking.

In bad times, those with capital and access to capital can exploit the declines in valuation. Thus, the expression, the rich get richer.

Kroenke is likely to have better access to the credit markets on better terms than khan and that could be another material consideration. Look at it this way, if two people are trying to buy the same house, the guy who can finance the purchase at the lower interest rate or with less cash down may be in a position to pay the seller more money, and therefore have a better shot at getting the deal.

ramming speed to all

general counsel

[HUbison]

Re: Financing an M and A transaction and the impact on the rams

Hubison, keep in mind that the forbes valuation is pure speculation, like any other "price guide" type information. Any asset is worth what someone will pay for it.

Of course it is. However, not all speculation is born equal; know what I mean?

However, you make an excellent point, The US (and global) m and a market has been in the tank for 18 months. Any agreed upon valuation even as recently as three months ago is likely to be higher today, at least to the extent that the target company (ie the rams) is a growth business. A primary driver of this is the credit markets, which have loosened up considerably and are likely to continue to improve. Thus, i think the "bargain" could be as simple as overall better economic conditions in the future, we makes many assets cheap now, relatively speaking.

Good point. Also helps to explain the use of the entire 60 days before announcing.

[MoonJoe]

Re: Financing an M and A transaction and the impact on the rams

And didn't he marry a Walton? That's smart too.

Even smarter, he didn't marry Bill Walton!!!