The facts behind the Canary money talk

The big-money valuation of Norwich City - £36m on top of Peter Cullum's promised player investment of £20m - has left many fans scratching their heads.

When billionaire Peter Cullum was effectively told to come up with a minimum of £56m to take over Norwich City, fans were taken aback.

The first £20m was obvious - it is the sum that the executive chairman of Towergate Partnership said he would spend on new players in exchange for control of the club.

The remaining £36m was more of a mystery, made up of £16m to buy the shares, £16m to repay the club's debt and £4m to settle directors' interest-free loans.

In layman's terms, and with the help of financial experts, the explanation is:

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In 2002, ITV Digital collapsed, leaving clubs, including, Norwich City with a big black hole in their finances.

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The club decided to issue shares to raise money, but shares can only be issued by a public limited company (PLC).

So the club became a PLC and launched what turned out to be a successful share issue that filled part of the hole.

The twist in the tale is that PLCs, unlike private limited companies, are covered by something called the City Code, which has particular rules around shares.

Under the code, anyone buying 30pc or more of shares in a PLC must make an offer at the same price per share to all of the shareholders.

The shares are currently issued at £30 each. So, if Mr Cullum got hold of 30pc or more of the shares at the £30 issue price, he would have to offer £30 per share to everybody else.

If - and this is a very big if - all shareholders took him up on his offer, Mr Cullum would face an overall bill of £16.05m for the 535,000 shares that are held.

If, as has been indicated, Mr Cullum wanted his £20m investment to be converted into shares, an extraordinary meeting of shareholders would have to be called to seek their approval to issue them.

Once issued, if Mr Cullum snapped them up he would immediately have a greater-than-30pc shareholding in the club - triggering City Code rules and forcing him to make an offer at the same price per share to every shareholder.

All of this taken at face value appears to add up. But, with industry sources suggesting the shares are actually worth between £10 and 15, the price to Mr Cullum could be between £5m to £8m.

The rationale behind the lower valuation of shares is that the value of Championship clubs is tumbling because of falling equity and property prices. There are also suggestions the value of City's fixed assets is less than the overall debt, raising the question of whether the club could technically be insolvent.


In April 2003, City took out a £15m “securitisation” loan - effectively a huge mortgage - to pay for the Jarrold Stand and bring a number of debts together.

The loan is repayable at a fixed rate over 15 years, and the current settlement figure is £16m.

If Mr Cullum took over at Carrow Road, the lender would almost certainly call it in, leaving the entrepreneur with a choice between paying it off from his own money or taking out a similar loan to cover it.

He is understood to favour the second option: renegotiation.

In the present financial climate, lenders are clamouring to recover as much money as possible, and the credit crunch means it is an uphill battle to get them to strike new loan deals. So, theoretically, Mr Cullum may have difficulty getting a loan approved. But it is doubtful whether a man valued at £1.7bn would have the same problem getting a loan as us mere mortals.


Michael Wynn Jones, Delia Smith, Michael Foulger and Andrew and Sharon Turner have handed over to the club interest-free loans of £4m between them. The Turners' contribution was £2m.

All of the loans have clauses stating that they must be settled if City's ownership changes hands. But it is understood Mr Cullum intends that the directors' loans would stay in place.

However, if the directors don't want to play ball, Mr Cullum would face the £4m bill.

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