A.C. Milan To China: Deal or No Deal?

A Chinese conglomerate is favorite to acquire a 80% stake in the club, according to sources close to the matter.

A.C. Milan To China: Deal or No Deal?

By: Abdullah Saeed Qureshi Published:

A Chinese conglomerate is favorite to acquire a 80% stake in the club, according to sources close to the matter

A Chinese Conglomerate led by Sonny Wu, a leading Chinese businessman and owner of GSR Ventures, is nearing a deal to take-over the Italian football giant A.C. Milan, news sources said on Wednesday. The deal is expected to finalize by the end of July. Several other Chinese billionaires are part of the deal, including Steven Zheng, a leading Chinese entrepreneur with businesses in the solar industry.

According to the Wall Street Journal (WSJ) which cited sources close to the matter, the Chinese group is likely to purchase more than an 80% stake in the club including debt, which will value the club at about $827 million (€ 750 million), including € 200 million of debt. The sale, if completed, would be the largest acquisition of a world class football club powered by Chinese money. Additionally, sources also highlighted that the Chinese group will also have the option to acquire the remaining 20% stake for about € 400 million in the next two to three years.

A.C. Milan, the seven times European Champion, was facing financial woes for the past few years, making it necessary for the club’s owner Silvio Berlusconi, also the former Italian prime minister, to look for an investor. It seems that Mr. Berlusconi’s long search for a new owner is has finally ended. Mr. Berlusconi wants to bring the club back to its glory days. The club, which was once feared by all opponents, hasn’t won a competitive tournament in the past five years and failed to qualify for the Champions League, Europe’s most elite football tournament, since 2013.

Last Friday, Chinese and Italian media also reported that Baidu Inc (NASDAQ:BIDU), China’s largest search engine, is also aiming to buy a majority stake in the club worth $437 million. Reports said that Baidu was looking to acquire a 70% stake in the football club, valuing the firm at about $624.3 million.

However, the company soon denied the reports. Whitney Yan, Baidu’s spokesperson said, “A Chinese consortium has since April been in exclusive talks about taking over Milan, which suffered from a lack of investment and success in recent years. That group doesn’t include Baidu or its CEO.” The company’s CEO, Robin Li is the world’s 84th richest person, according to Bloomberg.

Xi Jinping, President of People’s Republic of China, is a huge football fan and wants to grow the sport in the country. China, the world’s second largest economy, is yet to a make a mark in the world of football, qualifying only once for the most prestigious and biggest event of the sport, the FIFA World Cup. However, in the past few years amid “consistently bad economic outlook, falling oil prices, and growth reaching subpar levels,” the country is making headway in other significant sectors including sports, services and tourism.

Mr. Xi is pushing hard in hope that one day his country could make it to the World Cup and win it. The Chinese investors in the past one year have made huge investments in top European football clubs and have also attracted several leading players from all over the world to play in the Chinese Super League, by offering them a hefty salary. For example, the Brazilian footballer Hulk, who recently joined Chinese Super League club Shanghai SIGP, will earn £320,000 a week, close to what the world’s leading striker Lionel Messi earns at Barcelona.

In May, China’s Suning Holdings Group Co. also bought a 70% stake for $306 million (270 million euros) in A.C. Milan’s arch rival, Inter Milan. The company’s Chairman spoke about the deal and said that the acquisition would help the company increase sports and fitness interest in China. Additionally, it will assist in raising the standard of domestic football and would help in expanding the company’s profile globally.

The country’s recent investments in top European football clubs can be seen in the table below:

Zhang Lu, a renowned Chinese commentator and vice president of Beijing Guoan, a Chinese Super League club, said that Italian football clubs are cheap at present, and the value contains huge appreciation potential. He further added that he’s glad Chinese investors are making overseas investments, which is going to increase the country’s exposure to football.

Mr. Xi has made a national plan for the growth of sports in the country. At present, the Chinese government is working to develop about 70,000 football pitches in the country, which is expected to be completed by 2020. Moreover, the president is also hopeful that China will be among the top 10 Asian sides in the next few years. Other notable reforms include the separation of China’s Football Association from the country’s sports regulator and increasing the number of football academies to 20,000 by 2020 and 50,000 by 2025.

Industry Experts are also overly bullish on China’s growth prospects with respect to football. Prof Chadwick, a football analyst was quoted by BBC as saying: “I think China can win a World Cup. It has the resources, scale, and state backing to fast forward 150 years of football development into 10 years."

In one of his write-ups, Mr. Chadwick said that China’s aim to “create a domestic sports economy worth $850 billion by 2025 means that football is fast becoming a vital component of an emerging industrial sector.” He also believes that China, which was nowhere near the radar, is emerging as one of the heavyweights in the football industry. Now, the footballing world has gotten a glimpse of what the country is capable of and Chadwick believes that it is only a matter of time before China becomes one of the greatest footballing nations on the planet.