New Zealand Rugby and Rugby Players’ Association’s resumed hostilities over Silver Lake could head to High Court

Silver Lake has the legal right to invest up to a further $100m to bump its equity stake to 8.58 per cent. Photo / Photosport

The Rugby Players’ Association and New Zealand Rugby have resumed hostilities over the Silver Lake private equity deal, with the former trying to block the latter from pushing ahead with a previously agreed second capital raise in a move that could see the three parties end up in the High Court.

In a deal approved by the RPA last February, NZR was granted permission to sell a 5.7 per cent stake in its commercial assets to US fund manager Silver Lake for $200m, and then at a to-be-agreed later date, local institutions were to be offered the opportunity to invest up to a further $100m.

Silver Lake agreed to underwrite this second offering, which meant it could invest a further sum of between $62.5m – which was the minimum offering to institutions – and $100m, depending on the uptake from local institutions.

It is understood that local institutions have passed on the opportunity to invest on the grounds that the assets are overvalued at $3.5bn and that CommercialCo – the company which was created to own and manage NZR’s commercial assets – is not delivering the sort of returns to justify the likes of Kiwisaver funds and ACC from investing.

But while Silver Lake has the legal right to invest up to a further $100m in CommCo to bump its equity stake to 8.58 per cent, it is understood the RPA is arguing that the national body does not need any additional third-party money, and that it may resort to filing a High Court injunction to stop NZR from taking more money from its equity partner.

NZR chief executive Mark Robinson told the Herald that he can’t comment on where things stand with the second capital raise, other than to say: “We are continuing to work on it.”

The RPA also said it couldn’t make any comment, but other sources have told the Herald that talks between the two parties have been tense and fraught.

The RPA and NZR were at loggerheads throughout most of 2021 as they fought over the Silver Lake proposal.

NZR is thought to feel aggrieved that the RPA, having approved the legally binding deal in February last year – which was ratified by the provinces in June 2022 - is now appearing to renege on the agreement.

The national body has advocated since late 2020 that it needs a hefty capital injection to underpin new revenue-generating initiatives and protect the future sustainability of the community game.

It initially negotiated a $465m deal with Silver Lake that would see the US firm take a 15 per cent equity stake, which was revised down to $387.5m for a 12.5 per stake.

This deal failed to win support from the RPA and led to the revised and existing deal being agreed – one which also saw Silver Lake’s initial $200m investment effectively sit on NZR’s balance sheet as a 4 per cent loan for three years, before converting to equity.

The RPA, however, is effectively arguing that it would be financially and morally irresponsible for NZR to take more money from Silver Lake as it has no pressing need for additional capital and can’t make a compelling case to show that the partnership with the Americans will deliver the higher revenue returns to justify selling more equity.

One of RPA’s concerns about the first Silver Lake deal it refused to approve – a point also raised by the independent evaluation conducted by PricewaterhouseCoopers - was that NZR wanted to park excessively high amounts of capital in cash reserves.

NZR’s revenue jumped from $188m in 2021 to $270m in 2022, but this was due to improved sponsorship deals with Altrad, Ineos and Taisho that were negotiated pre-Silver Lake and the lifting of Covid restrictions which enabled the full value of the broadcast deal agreed in late 2019 to be paid.

With fewer home tests having been played this year due to the World Cup, NZR’s revenue for 2023 is likely to show a drop from last year and it is believed that forecasts for 2024 and 2025 are not as buoyant as many hoped they would be.

Once Silver Lake’s existing $200m investment converts to an equity stake, and if it then invests another $100m to own 8.58 per cent of CommCo, it will be entitled to receive an annual distribution which, based on NZR’s 2022 financial results, would have been around $21m.

While the RPA may try to file an injunction to stop any further Silver Lake investment if ongoing talks with NZR don’t lead to a mutually agreed solution, it is not clear what the long-term fix will be if the national body still wants to press ahead with the terms of the deal.