Leeds deal hits stumbling block

Sebastien Sainsbury’s £25m (€35.7m) deal to takeover Leeds appears to be in jeopardy – which could result in the sale of Elland Road tomorrow.

Earlier this week the American-backed consortium led by Sainsbury provided proof of funding to Leeds chairman Gerald Krasner and the United board.

It resulted in a joint statement issued on Tuesday by Leeds and Nova Financial Partners, the American group looking to buy the club, with both parties expressing hopes the matter would be resolved by 1pm tomorrow.

Such an unrealistic deadline was imposed by the Leeds board as the latest instalment is due on the £15m (€21.4m) loan they borrowed from Aston Villa shareholder Jack Petchey to fund their own purchase of the Yorkshire club in March.

Of the remaining £9.5m (€13.6m) Petchey is still owed, a further £2.5m (€3.6m) is to be paid, with failure to do so resulting in an astonishing £2m (€2.9m) penalty.

Behind the scenes, lawyers representing the two groups have worked round the clock and although contracts have been signed, problems have arisen which centre around the process of “due diligence”.

In layman’s terms it is fully understanding all the obligations of a particular company, which includes factors such as debts, leases, warranties, customer agreements and employment contracts.

Given the complex nature of the deal, attempting the purchase of a football club in the space of two and a half days – and bearing in mind the financial problems Leeds have had in the past – there was always the prospect of encountering virtually insurmountable hurdles.

In the event, the funds for the takeover that should have been transferred tonight have not been released as no bank will sanction such a transaction unless due diligence has been completed.

If Sainsbury is unable to complete the takeover by the deadline, the current board look set to broker a sale-and-leaseback arrangement on Elland Road, just as they did with the club’s Thorp Arch training complex for £4.2m (€6m) last month.

It is certain to provoke a major backlash from the supporters, but would allow Krasner to pay Petchey the instalment he is owed, and Leeds-based property developer Norman Stubbs, who has been waiting in the wings, to go ahead with his £10m (€14.3m) investment in the Whites.

Unlike Sainsbury, who it is believed would not include any of the current directors on his board, certain members of the Krasner regime would retain their positions.

However, despite Stubbs’ potential involvement, that may not be enough to stave off the threat of administration which continues to exist, and which could hit Leeds early next year.