EFTA00796528.pdf

A unique opportunity to acquire the last remaining super club of Europe AC Milan Acquisition Keffi July, 2018 EFTA00796528 AC Milan History: A-Grade Franchise Champions Leagues Winners Founded in 1899 06/07, 02/03, 93/94 1st Most European Titles for an Italian team 4x European Champions Most European Champions League/European 2 nd 89/90, 88/89, 68/69, 62/63 Cup Wins (behind Real Madrid) 18x Italian League Champions 10/11, 03/04, 98/99, 95/96, 93/94, 92/93, 91/92, 87/88, 78/79, 67/68, 61/62, 58/ 2 nd Most Italian Titles 59, 56/57, 54/55, 50/51, 1906/07, 1905/06, 190O/01 Located in Italy's economically largest City 5x Italian Cup Winners The club play in Serie A's largest stadium, the San 02/03, 76/77, 72/73, 71/72, 66/67 Siro, capacity 80,018 7x Italian Super Cup Winners 16/17, 11/12, 04/05, 94/95, 93/94, 92/93, 88/89 lx FIFA Club World Cup Winners 07/08 2x Italian Serie B Champions 82/83, 80/81 fl 3x Intercontinental Cup Winners 90/91, 89/90, 69/70 2x Cup Winners Cup 72/73, 67/68 lx Mitropacup 82/83 5x UEFA Supercup Winner 07/08, 03/04, 94/95, 90/91, 89/90 2 Keffi EFTA00796529  AC Milan: Only European Super Club Available for Sale Ownership Ownership Club European Titles League Owner Willing Seller Nationality Since 1 Real Madrid 22 4 Fan/Member Ownership 1902 No Restricted from sale 1 2 AC Milan 17 Elliott Management July 10, 2018 Yes Foreclosure situation 3 Barcelona 14 4 Fan/Member Ownership is 1899 No Restricted from sale 4 Liverpool 11 Fenway Sports Group 2010 No Financially strong U 5 Juventus 11 I I Agnelli Family 1923 No Financially strong 6 Bayern Munich 10 Fan/Member Ownership 1900 No Restricted from sale 7 Inter Milan 8 Zhang Jingdong 2016 No Improving financially 8 Manchester United 7 Glazer Family 2011 No Financially strong S rr 9 4IP Atletico Madrid 7 Gil Family 4 1987 No Financially moderate 100 Chelsea 5 Roman Abramovich 2003 No Financially strong 11 Tottenham Hotspur 3 Joe Lewis 2001 No Financially strong 12 Borussia Dortmund 3 Fan/Member Ownership 1909 No Restricted from sale 13 Paris Saint Germain 2 I I Qatar Sports Investments 2011 No Financially strong 14 Arsenal 1 Kroenke Family 2007 No Financially strong 15 Manchester City 1 Abu Dhabi United Group C 2008 No Financially strong Roma 0 James Pallotta 2011 No Financially moderate Historic Super Clubs: ■ Owner Subsidized Success: Recent Organic Success: 3 KeffiGroup EFTA00796530 Ownership Situation Overview Chinese businessman, Li Yonghong, closes the acquisition of AC Milan for €740m from Silvio Berlusconi's company, Fininvest. At the time, Mr. APRIL, 2017 Li, unable to secure debt (€303m) for the deal from conventional sources, resorted to high yield debt to fund the deal. This was provided by US hedge fund, Elliott Management (at a rumored 11% interest rate). SUMMER 2017: AC Milan embarked on an aggressive summer transfer market strategy, investing heavily in a number of young players, with two objectives: 1) TRANSFER MARKET rejuvenate the aging squad, 2) get back into the lucrative Champions League. The club record a net transfer spend of €155m. The New York Times publishes an article noting the doubts around the existence of Mr. Li's business interests in China. UEFA note 'grave NOVEMBER, 2017 concerns' over Mr. Li's financial stability. Having retained advisors to source debt from lower cost providers, Mr. Li is rumored to draw further funds from the high cost liquidity facility MARCH, 2018 provided by Elliott. Mr. Li fails to meet a €32m interest payment to Elliott Management. AC Milan failed to qualify for the Champions League and record their lowest revenue figure in a decade. The club are being investigated by UEFA's Financial Fair Play commission. Two US based sport franchise JUNE 22, 2018 owners are reportedly interested in acquiring AC Milan, the Ricketts Family (owners of baseball team, the Chicago Cubs), and Roberto Commisso (owner of US soccer team, New York Cosmos). The bids are rumored to be at the low end of the €500m range. UEFA finds that AC Milan have breached the 'Break-Even Rule', as a result of their exorbitant transfer spending the previous summer and the JUNE 27, 2018 financial instability of their owner. The club are banned from European competition for the 2018/19 season (they had qualified for the Europa League), and potentially the 2019/20 season. The club may receive a further fine (potentially €20m). The club are appealing the ruling. Mr. Li fails to meet the deadline to cure the default. Elliott takes control of the holding company, stating their intention to stabilize the club's JULY 10, 2018 financial situation. However privately and historically have indicated desire to sell the club. Elliott seeks to appoint a new Board and President of the club. However non-attendance of Chinese Board members precludes a quorum JULY 12, 2018 being met. Elliott will now seek to reconstitute the Board on July 21st. Private discussions with Elliott on sale of the asset gaining pace, in-spite public statements. KeffiGroup EFTA00796531 Limited Buyer Universe & Secular Trends *:: Chinese buyers constrained due to capital flow restrictions currently in place Russian buyers prevented from entering the market due to sanctions, and political uncertainty LIMITED Precluded due to ownership of Paris Saint Germain Cs BUYER UNIVERSE Precluded due to ownership of Manchester City Cs 0 Clear appetite, acknowledgement of secular trends 1. Media landscape moving toward content ownership 2. Increasing demand for European soccer globally, carried by European super clubs 3. Point 2. could culminate in a European super competition. Arsene Wenger commented May, 2018: "The next evolution? Maybe I will see SECULAR TRENDS you in a few years and you will certainly have a European league over the weekends." 4. There are limited assets that are still available to take advantage of 1, 2, 3, bidding up prices on these assets 5. Italian Football in process of renegotiating broadcasting rights 5 KeffiGroup EFTA00796532  Trading Comp Valuation: implies value around €600m LTM Revenue LTM EBIT EBIT/Rev Net Debt Market Cap Enterprise Value EV/EBIT EV/Rev Manchester Utd £ 608 £ 61 10% £ 301 £ 3,379 £ 3,680 60.4x 6.1x Arsenal £ 414 £ 57 14% £ 56 £ 2,146 £ 2,202 38.6x 5.3x Juventus € 538 € 34 6% € 298 € 665 € 963 1.8x Roma € 175 (€ 33) € 209 € 290 € 500 Borussia Dortmund € 580 € 83 14% (€ 5) € 517 € 512 Mean* 11% 33.4x 3.4x Median* 12% 33.6x 2.9x AC Milan LTM Revenue Implied EBIT Normalized EBIT Margin Implied EV Selected EV/EBIT Selected EV/Rev High Case € 196 € 22 11% € 728 33.4 Mean Case Base Case Roma Case € 196 € 196 € 196 € 22 € 22 11% 11% € 662 € 622 € 559 28.6 (43 Analysis: Previous bids in the low €500m range, below market valuations based on peer multiples • Base Case (derived from Juventus EBIT multiple) to Mean Case (derived from peer group mean revenue multiple) represents most applicable valuation range • High case derived does not capture the club's current distress, therefore club should trade at a discount to this • EBIT has been normalized to peer mean — the club announced a €28m EBITDA figure on June 25, 2018 • Trading comps do not capture the control premium, and the lack of trading liquidity in some of the stocks can artificially depress the value of the corresponding club Sources: Publicly available financial information Excludes Roma's EBIT/Rev & EV/EBIT figures due to negative operating earnings Keffi EFTA00796533