Your Everton Share
Guy McEvoy illustrates a probable scenario for the proposed rights issue of new Everton shares...

13 January 2004

Think of it like this:

There are 35,000 shares in Everton Football Club.  Suppose an Everton Shares are valued on the private market (for the sake of argument) at £1,400 each.  This would give the club a theoretical market value of 35,000 x £1,400.  Which is £49 million.  Each share represents one 35,000th of the value of the club.

The problem is that none of that £49 million that the share capital represents is 'liquid' money.  We need dosh.  Let's say we do a rights issue of 15,000 shares, at a sale price of say £1,000 each.  That would put £15 million in David Moyes's coffers.  Fine and dandy.  It would also mean there are now 50,000 EFC shares in circulation.  Are you keeping up?

The shareholders' resistance may be this: Each share you own currently represents one 35,000th of Everton FC; after the issue, it will be worth only one 50,000th.

Presuming the market had priced Everton fairly in the first place (which it may or may not — markets are fickle things) the club would be worth the £49M it was before the rights issue + the £15M cash it received during the rights issue.  Therefore, the club would be worth £63M.

But there are now 50,000 shares in circulation.  So divide £64 million by 50,000 total shares and you see that, other things being equal, the shares are now £1,280 each.   All existing shares therefore drop in value £120 quid over night.  A big 'ouch' if you are carrying 5 or 6 thousand of them.  (This is obviously softened if you took part in the rights issue as each 'new' share 'made' £280 over night).

The gamble for the shareholders is that the £15 million raised is spent wisely.  If it is, and the club uses it to advance Everton past where we can get with current funds, then everyone is a winner.  If we got Champions League qualification on the back of the three Nicky Butts the cash injection could get us, and that added £25M extra in the market's opinion of our worth, then the maths would look like this: Current worth = £64M + £25M = £89M.

£89M divided by 50,000 would value each share at £1,780.  A nice increase of £380 per share for those who held the original shares, and a whopping nice increase of £780 a share for those who took up the rights issue.  Everyone is a winner.

The only thing that worries me is the assumption that the £15M is spent 'wisely'.  Let's face it, it is not actually a mammoth sum in modern terms — even in the new depressed market.  Indeed, it is less than the cash injection the securitisation a few years ago gave us.  In modern football £15M quid can oh, so easily, count for nothing whatsoever.  Ask Mark Gold thingy from Crystal Palace.  This is a one shot thing.  And it could easily add nothing whatsoever in a year's time.

If I was a shareholder (hang on — I am!)  I would be cautious:  That is, I would be if I had invested in Everton for financial reasons.  I didn't.  I invested in Everton cos I love them.  And I love the idea of one day the club being owned by 100,000 individual fan-shareholders rather than a select few major shareholders looking ot make a quick buck.  That would put the 'Club' back into Everton Football Club.  Handled properly this proposed rights issue could be a step towards that.

Guy McEvoy

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