SISU's proposals for Southampton FC

From countless hours of meetings with potential investors stretching back to 2006, the London-based hedge fund remain the only company to ever table an official bid for Saints.

SISU’s plans were first discussed at a PLC board meeting at St Mary’s on October 19, 2007.

Directors had been sent a letter dated three days earlier which had been written by SISU managing director Onyechinaedu Igwe outlining their plans for Saints.

That letter is printed on pages 56-57.

The Daily Echo has obtained a copy of the PLC board meeting minutes for October 19.

The extracts below are the ones concerning the SISU proposal and subsequent discussions.

Present at the PLC board meeting were: Ken Dulieu (Chairman), Jim Hone, David Jones, Lee Hoos, Leon Crouch, Patrick Trant, Andy Oldknow.

Apologies: Keith Wiseman In attendance: Roger Clement, Seymour Pierce (Southampton Leisure Holdings’ financial advisors), Duncan Christison, Dickson Minto W.S. (a corporate law firm), Giuseppe Giusti, Dickson Minto W.S.

4.2. The Chairman noted that all the Directors had received in advance of the meeting a copy of an indicative offer letter dated 16 October 2007 from SISU Capital Limited (SISU) to Seymour Pierce setting out the terms and conditions upon which SISU is prepared to make an investment in the Company (the ‘Transaction’).

4.3. The Chairman delivered a Powerpoint presentation to the other Directors setting out the financial position of the Company and the rationale and the main terms of the proposed Transaction.

He then invited the Directors to express their views in respect of the Transaction and, in particular, whether they believed the Board should proceed with the implementation of the Transaction.

4.4. Mr Trant queried whether the £12 million proposed to be invested by SISU was gross or net of the Company’s costs and expenses.

Mr Hone explained that £12 million was the gross sum the Company would receive from the placing but that the Company would incur costs in connection with it that would reduce its cash resources.

Mr Trant explained that in light of those costs, he was of the view that the placing would only realise a net sum of approximately £10 million for the Company.

4.5. Mr Trant noted that SISU and/or its investee companies had been involved in certain litigation proceedings and noted that the value of SISU’s investments had fallen significantly during the past year.

Mr Trant noted that it was unfortunate that the full Board had not had an opportunity to meet with representatives of SISU.

The Chairman explained that as members of the Company’s Recapitalisation Committee he, Jim Hone and David Jones had met with representatives of SISU to discuss the proposed Transaction.

Mr Clement explained that, in light of the recent turbulence in the financial markets, it was not at all surprising that a private equity house such as SISU would experience a fall in the value of its investments.

4.6. Mr Trant advised that, in his opinion, it would be a difficult task to persuade the Company's shareholders to vote in favour of the Transaction and he asked whether the Transaction would require to be approved by a simple majority or a 75% majority.

Mr Trant noted that the price of 40p per share might be unattractive to shareholders considering the current share price of around 50p.

Mr Giusti confirmed that the Transaction required to be approved by a 75% majority at the general meeting because a special resolution was required.

4.7. Mr Clement explained that SISU’s offer was the only serious offer available to the Company and that there were no other parties interested in investing in, or making a bid for, the Company.

Mr Clement noted that the current share price of the Company of around 50p was not a fair reflection of the value of the Company and was a hangover from the preliminary interest expressed 6 months or so ago on behalf of Paul Allen.

4.8. Mr Trant asked whether the Company’s major shareholders had already expressed a view on the proposed Transaction and, if not, whether the Board should wait until such views had been received before deciding whether to recommend it.

Mr Trant queried what would happen if the Board were to recommend the Transaction but the major shareholders did not approve it.

The Chairman advised that the Company's major shareholders, other than Mr Crouch (namely Rupert Lowe and Michael Wilde) had not been contacted in respect of the Transaction because the Board should first decide whether or not it was agreeable in principle to proceed with the Transaction.

Mr Clement explained that Seymour Pierce would approach the major shareholders to discuss the Transaction when and if the Board had resolved in principle to proceed with it.

4.9. Mr Christison reminded the meeting that news of the proposed transaction and the terms on which it was proposed constituted price sensitive information in respect of the Company.

He advised if the Board wished to proceed with the Transaction then Seymour Pierce must restrict their discussions of the Transaction to only the three or four major shareholders of the Company and no other shareholders at this time.

4.10. Mr Christison explained that the Board would not be required to issue a public recommendation of the Transaction to its shareholders unless and until the major shareholders agreed to give the irrevocable undertakings to vote in favour of the Transaction and accept the tender offer as required by SISU in terms of the indicative offer letter.

4.11. The Chairman indicated that he would endeavour on behalf of the Company to resist signing an inducement fee agreement with SISU until the Board was confident that the Company’s major shareholders might vote in favour of the Transaction and sign the irrevocable undertakings sought by SISU.

4.12. Mr Crouch asked whether the Company’s debt funding would remain with Norwich Union if the Transaction is completed.

Mr Clement explained that the debt funding would remain with Norwich Union but that SISU had indicated that they may wish to take over the debt if it gained majority control of the Company.

Mr Hone noted that if SISU were to take over the debt then SISU would be committing approximately £40 million in total which would represent a very significant preliminary commitment.

4.13. Mr Crouch noted that SISU’s indicative offer was subject to further confirmatory due diligence.

4.14. Mr Clement said Seymour Pierce was arranging for the outstanding due diligence information to be made available for inspection by SISU and noted that bondholder consent had also been obtained in satisfaction of the pre-condition referred to in the indicative offer letter.

4.15. Mr Crouch advised that he believed SISU’s offer was not a good deal for the Company’s shareholders and the Company should seek more attractive offers from other interested parties.

Mr Crouch asked whether if he was to vote as a director in favour of the Transaction at the Board meeting he would later be able to vote against the Transaction as a shareholder.

The Chairman emphasised that SISU’s offer was the only offer currently available to the Company.

The Chairman explained that if the Board was to recommend SISU’s offer then such recommendation would not prevent any third party from approaching the Company with a more attractive offer for the Company’s shareholders.

The Chairman noted that SISU had not requested an exclusivity undertaking although it was noted that the proposed inducement fee arrangements might result in a form of exclusivity.

4.16. Mr Christison explained that each Director had to evaluate SISU’s offer at the meeting in his capacity as a Director of the Company and not in his capacity as a shareholder of the Company.

Mr Christison noted that it was permissible for a Director to recommend the Transaction in his capacity as a director and later to vote against the Transaction in his capacity as a shareholder.

However, if this approach were taken and it become known that it had been taken it might cause confusion amongst other shareholders.

Mr Christison noted that it was possible for split recommendations to be issued by boards with the Takeover Panel’s prior approval.

4.17. Mr Crouch asked whether the Board could defer consideration of SISU’s offer until the following week.

Mr Crouch said he was trying to initiate discussions with some parties in Spain and the US who might be prepared to invest.

Mr Clement explained that the Takeover Panel expected the directors of a public company to consider promptly any offer received from third parties and that the more time that passed the higher the risk of leakage of confidential information to the media.

4.18. Mr Clement left the meeting.

4.19. Mr Hone explained that he intended to vote in favour of recommending SISU’s offer, at least in principle and as a basis for further negotiation, because he believed this was in the best interests of the Company’s shareholders and other stakeholders and offered the prospect of a strong future for the Company.

Mr Hone added in view of the Company’s current and forecast financial position, he did not wish to be criticised in future for playing any part in denying the Company’s shareholders the opportunity to consider an investment proposal of the sort proposed by SISU when there was nothing to suggest that a better bid would come along before the Company was very likely to run into difficulty continuing as a going concern.

Mr Hone asked Dickson Minto for advice on the Directors’ fiduciary duties in light of the proposed Transaction and in the light of the Company’s financial position.

4.20. Mr Christison advised the Directors that they owe their fiduciary duties to the Company and not to its shareholders although where a third party is offering to make a tender offer to all shareholders, the Company’s interests may be considered to be the shareholders interests in that respect.

Mr Christison advised that if a company is insolvent, or is close to insolvency, then the directors must be mindful of the company’s creditors and must avoid trading in a ‘wrongful’ manner within the meaning of the Insolvency Act.

Mr Christison noted, however, that the auditors were willing to sign off the Company’s latest annual accounts on a going concern basis with an unqualified audit report and the Board was satisfied that the Company could continue to trade until the end of the current football season and therefore the Company did not appear to be in an imminent insolvency situation.

Mr Christison advised that, irrespective of the Company's financial position, the Directors were obliged under the Takeover Code and under their fiduciary duties to give careful and prompt consideration to SISU's offer, assuming that the Board considered the offer to be credible.

Mr Christison noted that if the Board had particular concerns about the Company's financial position then the Board may wish to give greater, and prompter, consideration to SISU’s offer.

4.21. The Chairman explained that he intended to vote in favour of recommending SISU’s offer for the same reasons put forward by Mr Hone and the fact that SISU’s offer was the only serious offer received by the Company.

4.22. Mr Jones advised that he intended to vote in favour of recommending SISU’s offer for the same reasons expressed by Mr Hone and the Chairman and that he believed that the Company’s shareholders, very many of whom were also supporters of the Football Club, would find the Transaction attractive for a number of reasons, including the availability of further funds to invest in the first team squad and in maintaining and developing the Club’s Football Academy.

4.23. The Chairman circulated among the Directors an e-mail received from Keith Wiseman whereby Mr Wiseman advised that he was willing to support SISU’s proposal and was prepared to abide by the view the Executive Directors would take.

4.24. Mr Hoos advised that for the various reasons previously articulated he also supported the Transaction and explained that, in his opinion, it was the only option available to the Company.

Mr Hoos also explained his view that the Company's shareholders should be given the opportunity to consider and vote upon the Transaction.

4.25. The Chairman put the resolution to the vote and after due and careful consideration, and having regard to the best interests of the Company and its shareholders, IT WAS RESOLVED (with Mr Crouch and Mr Trant abstaining, all the other Directors present voting in favour and Mr Wiseman’s email being taken as a vote in favour) THAT the Company should proceed with the implementation of the Transaction.

The Chairman declared the resolution passed with six Directors voting in favour, none against and two abstaining.

4.26. Mr Hone asked for direction from the company’s lawyers as to whether any of the Directors present at the meeting could communicate with anyone outside of the Board about the matters discussed at the meeting and the resolution passed.

Mr Christison confirmed none of the Directors should talk to anyone outside of the Board about, or publicise, such matters (including the Company’s PR advisers) unless the Board decided otherwise or unless an announcement regarding the Transaction was required under the Takeover Code due to rumour or speculation which could affect the Company's share price.