David Conn: Liverpool say no to Morgan again

In a city famed for colourful, direct language, the statement from the millionaire businessman Steve Morgan about the collapse of his talks with Liverpool Football Club was ever so grey with business speak.

In a city famed for colourful, direct language, the statement from the millionaire businessman Steve Morgan about the collapse of his talks with Liverpool Football Club was ever so grey with business speak.

What did the man, known to be a passionate supporter of the club and a public critic of the way it has been run, mean when he said he withdrew his proposed huge injection of cash because: "The two sides had failed to agree on how the £70m investment would be split between the club and shareholders"? Picking through that buttoned-up summary is not easy but it helps to know the history. After last May's fiasco, when Liverpool's chief executive Rick Parry turned up in Thailand announcing a bizarre agreement with the Prime Minister Thaksin Shinawatra, Morgan, the Garston bricklayer turned Jersey-based magnate, announced his own £73m offer to put money into the club. The Liverpool directors, chaired by David Moores, the Liverpool fan and long-haired, music-loving heir to the Littlewoods fortune, turned Morgan down, saying his offer "undervalued the club".

The Thai deal crumpled after coverage of the Government's less than salubrious human rights record and fierce opposition to the idea that the money would come from millions of Thais parting with their bhats in a public Lottery. Then there were talks with another of Thailand's richest men, Paiboon Damrongchaitham, the chairman of the record company GMM Grammy. That, too, was a mooted £65m deal for 30 per cent of Liverpool, and Parry and a representative of Moores met Damrongchaitham over the summer. However, doubts arose again after Damrongchaitham said he wanted the bid supported by smaller Thai investors, and in late July Parry told Liverpool's website that things had gone "pretty quiet". This week a source close to the negotiations told me talks were "progressing" but, clearly, not at lightning pace.

Morgan, the Liverpool man, began to loom larger as the obvious local option, and earlier this month talks resumed to try to thrash out a deal. Morgan's accountants went in to do "due diligence", scrutinising Liverpool's figures and business. Negotiations reopened about his offer, now £70m, and how it could be best invested for the benefit of Liverpool. Both sides signed confidentiality clauses, which has meant that apart from Morgan's brief statement this week, neither side has said anything. Ian Cotton, a spokesman for Liverpool, told me that neither the club nor David Moores would make any comment.

Liverpool's fans, bemused and not a little embarrassed by the sight of their chief executive discussing investment in Bangkok rather than Anfield & Breckfield, were not given much to go on. However, in that dry phrase, "the split between the club and shareholders", lies the meat of this story.

Morgan has made no secret of his contempt for the running of Liverpool under Moores, having previously been the angry-man-at-the-back in stormy Annual General Meetings. His proposal in May was that all the money, from a £61m rights issue and a further £12m share issue aimed at supporters, should go to the club itself, to spend on players, the long-awaited new stadium and other commercial reinforcements necessary to get Liverpool on terms with the Manchester Uniteds.

In a rights issue a company issues new shares and the money investors pay to buy them goes into the company's coffers, not to buy off existing shareholders. Morgan's offshore vehicle, Bridgemere Investments Limited, was underwriting both rights issues, so it is assumed that Morgan would have picked up most of the £61m issue, and assumed control of the club. Given his hostility to the way Liverpool have been run, there was little doubt he would have wanted Moores to step down.

There is more to his antipathy than the raw anger of a fan who believes his club is falling behind and makes the time-honoured call to "sack the board". There could hardly be a starker culture clash between the two men. Morgan has built his own way from grafting on building sites to a fortune made several times over in his housebuilding company Redrow, then in hotels, and he retains a fair chunk both of Redrow and De Vere Hotels.

David Moores is one of the dynasty around the late Sir John Moores, who founded the Littlewoods pools company when he was working as a clerk in Salford in 1923. The company grew into a pools, mail order and retail giant, the largest privately owned company in Britain, which was sold in total for around £1bn two years ago. Sir John spent some of his fortune on philanthropic causes, which, in his view, included his ownership of Everton, which he financed steadily to their League Championship victory of 1970, without the spendthrift vulgarity of our Abramovich era. David is Sir John's nephew and he was born into riches. He is understood to have worked for Littlewoods for a time, although not ever to have been a director of the company. As a rich Liverpool lad growing up in the Sixties, he was more interested in the music scene and standing on the Kop, but as a family member he stood to inherit part of the Littlewoods fortune. In the autumn of 1991, he subscribed for around £2m worth of new Liverpool shares to become the majority shareholder and give the club some cash to work with for the seating of the Kop required by the Taylor Report.

Morgan, the workaholic, has accused Liverpool under Moores of lacking the commercial dynamism and experience required to steer the club into the new stadium and modern football's globalised waters. While Morgan was building his companies up, in terms of his experience of companies at board level Moores has been a director, according to official Companies House records, of only two non-football related companies. One was Dry Communications, formed in March 1991 to promote the band Thomas Lang. In its first 17 months of business, the company lost around £50,000, then ceased trading, was dissolved and struck off the company register in July 1994. The other, Goalaction, appears to have been a recording studios venture, which he formed in September 1990. The company lasted less than three years, and was dissolved and struck off in June 1993.

Morgan's latest proposal to Liverpool was rooted in his desire that the money should be for the club's use, but the board and their financial advisors, Hawkpoint, insisted that some of Morgan's cash had to go to the existing shareholders. This meant that David Moores, the major shareholder by far, and other shareholders should be paid for some of their shares in return for relinquishing control.

Morgan wanted to put the most possible money into the club, but the board is understood to have argued that Liverpooldoes not need as much as £50m, and so more of the money - half of the £70m according to sources close to the talks - could be made available to shareholders.

Liverpool are understood to be planning to finance their new stadium on Stanley Park - which has planning permission but is still being opposed by a group of local residents - almost wholly by borrowing the money, originally forecast to be around £80m, then repaying it from the increased ticket income. The Board therefore concluded they do not need much of Morgan's investment to finance the stadium, and so could ask for more to be paid to shareholders.

In a nutshell, the board was arguing that £35m of Steve Morgan's money had to go to shareholders, and as David Moores is the 51.6 per cent shareholder, that suggests he would have been entitled to cash in at least £17.85m worth of his shares.

The board and shareholders were entitled to demand it because Morgan was looking for control, more than 30 per cent of the company, in effect a takeover bid which normally requires an investor to offer to buy out all existing shareholders. The shareholders were being asked to waive that right, and so were entitled legally to ask for more money, and to block the deal if they were not satisfied.

Morgan was extremely reluctant to do it, but in the early negotiations he is understood finally to have agreed in principle to pay half his £70m to shareholders. However, his accountants are believed to have then reported to him that the projected costs of the stadium have substantially increased, and that led him to conclude that the club did indeed need £50m, and he offered only £20m to shareholders.

Hence Morgan's apparently emotionless statement. He was not prepared to budge from giving £20m, at most, to Liverpool shareholders, apparently £10m to David Moores, because he wanted the money to go to the club. The club refused to accept that and so the talks folded.

Liverpool are behind United, Chelsea and Arsenal financially, but are still in a 48,000 seat Anfield and not in trouble. They are hoping their new manager Rafael Benitez, with the money he has spent on players, albeit following Michael Owen's sale, will bring success and render a large new investment unnecessary. With Morgan gone again, the "Thai version of Richard Branson", as Damrongchaitham has been described, is, however unlikely, the only candidate around.