June 28, 2018 / 11:06 AM / 9 months ago

Breakingviews - AC Milan’s UEFA loss is Elliott’s gain

Europa League Round of 16 Second Leg - Arsenal vs AC Milan - Emirates Stadium, London, Britain - March 15, 2018 AC Milan's Andre Silva in action Action Images via Reuters/John Sibley

MILAN (Reuters Breakingviews) - AC Milan’s UEFA loss is likely to turn into a gain for U.S. hedge fund Elliott. The famed Italian soccer club has been excluded from next year’s Europa League given doubts over its finances. The ban will likely curb attempts by its struggling Chinese owners to swiftly resell the team – but boosts the chances that creditor Elliott ends up taking on the club for a song.

Two years after agreeing to buy AC Milan from media tycoon and former premier Silvio Berlusconi, the Chinese consortium led by little-known businessman Li Yonghong continues to struggle to come up with sufficient capital to shore up the club. Such uncertainty, as well as lack of information on the Chinese owners, has raised alarm bells at UEFA, triggering the AC Milan ban.

The exclusion complicates a possible sale of AC Milan, which Reuters says has attracted interest from U.S. cable TV billionaire Rocco Commisso and the Ricketts family, owners of U.S. baseball team Chicago Cubs. Li’s initial price of 740 million euros was already excessive. Add two capital increases of 60 million euros each approved since the change of hands, an estimated 30 million euros of interest on loans and bonds of around 300 million issued to Elliott, and the potential sale price that Li would need to cover his investment balloons to nearly 900 million euros.

Unfortunately, AC Milan’s enterprise value is no more than 533 million euros, KPMG says. And the exclusion from the European tournament could offer a prospective buyer an edge to argue for a lower price. This is despite the fact that fees offered to soccer clubs in the Europa League are inferior to those handed out in the Champions League. A prospective Europa League 2018-19 winner would take home one quarter of the revenue of its Champions equivalent, UEFA data shows.

For Elliott, the situation looks like a win-win. The hedge fund’s 300 million euro of credits to Li are pledged against the whole club, including brand and intellectual property rights. If Li cannot meet a payment of 32 million euros by July 6, Elliott could call in the collateral, ahead of an October deadline for principle repayment. While Li is increasingly forced to play in defence, Elliott may soon score an easy free kick.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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