Shares in Leeds United plunged nearly 20% on Wednesday after the struggling Premiership club warned it is in serious danger of being forced into administration.
The warning came on the day the club had planned to announce details of a restructuring of debts of nearly £80-million.
In a statement to the stock exchange, Leeds admitted the talks have not yet produced an agreement and that a plan under which deputy chairperson Allan Leighton and microchip company ARM Holdings would inject £4,4-million in short-term financing via a new share issue has been shelved, at least temporarily.
A statement said Leeds directors remain optimistic that talks with creditors and potential new investors will result in an agreement to secure the club’s long-term financial future, but also acknowledge the risk of failure.
”The directors remain of the view that, if all of these negotiations are concluded successfully, they will provide adequate funding for at least three months in which to conclude arrangements designed to achieve a more permanent refinancing of the group,” the statement said.
”But, if the negotiations referred to above are unsuccessful, the directors may be forced to seek the protection of an administration order.”
Leeds have been widely reported to be in discussions with Sheikh Abdul din Mubarak Al-Khalifa, a member of Bahrain’s royal family, about a possible injection of funds into the club, of which he is a supporter.
However, the statement to the stock exchange made no mention of the billionaire sheikh, an absence that was interpreted by the market as a sign he was unwilling to back the refinancing deal.
Leeds are currently anchored to the bottom of the English Premiership and without a permanent manager following the sacking of Peter Reid last month.
Southampton manager Gordon Strachan has been identified as the man to take over and save Leeds from the nightmare scenario of relegation. But Strachan is seen as unlikely to leave his current job unless he receives assurances that Leeds can provide him with money for new players — an increasingly remote possibility in the wake of Wednesday’s announcement.
The club’s financial crisis is the legacy of wildly profligate spending on players and their salaries under former manager David O’Leary and then chairperson Peter Ridsdale.
The spendthrift approach worked briefly as Leeds reached the semifinals of the Champions League three years ago.
But as results on the pitch began to faulter, Leeds’ enormously expensive cost-base proved unsustainable and O’Leary’s squad was dismantled by the enforced sale of players including Rio Ferdinand, Jonathan Woodgate and Harry Kewell.
In the past financial year, the club registered a loss of just under £50-million, the largest to date for a quoted English football club.
The club is now facing the prospect of relegation to the first division, an outcome which, refinancing package or not, will almost certainly force the club into administration and could even see it wound up entirely. — Sapa-AFP