Hitt og þetta 23. ágúst 2006

DJ THE SKEPTIC: Toon Investors

(This story was originally published Monday)
By Robb M. Stewart


LONDON (Dow Jones)--Newcastle United kicked off the new soccer season with a 2-1 win over Wigan Athletic, but that isn't what pushed its shares up Monday.

The Magpies have joined the growing list of Premier League football clubs garnering takeover interest, after Jersey-based investment firm Belgravia confirmed it is looking at a potential acquisition of the team.

For those holding on to shares that remain well below where they were floated in 1997 despite the froth of takeover speculation for more than a year, the thought of a buyout must appeal.

But just what Belgravia sees in Newcastle is far from clear.

On the pitch, the Magpies finished seventh in last season's Premiership. Founded in 1892, the club may have collected four league titles and six FA Cups, but it hasn't won the league since 1927 or the FA Cup since 1955.

Away from the field, the club last year turned in a net loss of GBP104,000 on a 3.5% drop in revenue. In the first half of this year, the club remained in the red and revenue was down on year.

Thomson Financial figures put the club's market cap at GBP81.2 million, and its total debt at about GBP70.8 million.

Its current operating margin? Return on equity? Return on assets? Free cashflow per share? All negative.

And Newcastle United's share price? While a shadow of the 135 pence a share debut, it has turned in a near-34% gain so far this year ahead of the confirmation of Belgravia's interest, largely on rumors earlier in the year hedge fund Polygon was trying to buy the club and a statement last year that former Chairman Sir John Hall had been approached for his 28.5% stake.

Belgravia has pockets deep enough to buy Newcastle United. It reportedly has about GBP1.1 billion in assets, mainly in its asset management division.

Yet it's likely to be pushed for a significant premium if it's looking for an outright buy. Hall's stake may be up for grabs, but it's not clear his son Douglas Hall, who owns 12%, is looking to sell. And current Chairman Freddy Shepherd, who owns 28%, is reportedly keen to hold on to his interest and has been adding to his holding.

Supporters, too, will be hoping for a buyer of the ilk of Russian tycoon Roman Abramovich, who bought Chelsea for about GBP140 million but has since invested many times that to pick up top players who have helped the team to wins.

Curiously, Belgravia's business interests usually focus on telecommunications and services for construction, hospitality and aviation. It has an "affinity marketing" consultancy, which helps clients develop products such as football-club-branded credit cards.

It's hard to see where it thinks it would make a return on an investment in Newcastle United. It may play in the world's top domestic football league and for the first time in history, the Premiership teams last year saw wage costs decline while takings from broadcasting rights rose.

But overall revenue for the league has been growing only sluggishly, and it is turning in losses for the most part. There is a direct correlation between the millions of pounds invested in players and results on the field, particularly as unlike in U.S. sports there is no cap on player salaries.

So could the answer be that Belgravia is acting for a client looking to buy a trophy asset - a rich Russian, American or someone else looking to join the ranks of Abramovich, Gaydamak, Glazer, and Lerner?

(Robb M. Stewart, founder of the Skeptic column in 2001, has reported for Dow Jones Newswires since 1997 from Sweden and the U.K. He can be reached at robb.stewart@dowjones.com)

(END) Dow Jones Newswires

August 22, 2006 01:45 ET (05:45 GMT)

Copyright (c) 2006 Dow Jones & Company, Inc.