Miller Industries

After the Scottish media’s highly successful enquiries into Craig Whyte last year thwarted a disaster for a Scottish institution, Bill Miller’s elevation to ‘preferred bidder’ in the two-horse race to become Rangers’ next owner merits a closer look. On the theory that companies reflect the personalities of their founders, I thought that a check on Miller Industries Inc. might be instructive. A quick analysis of their regulatory filings makes for dull reading. That lack of interesting material alone should be a cause for celebration within the blue sections of Glasgow. In the mundane and orderly details of an unexciting business like towing equipment, there could not be a more stark contrast between Miller and Whyte.

Only last night was I told that Miller only owns 3.35% of Miller Industries, Inc.’s outstanding stock- a stake worth US$5.8m. That is not a lot of money and it fueled my curiosity. However, after just a little digging, I found that in just in this calendar year so far, he has sold about US$1.4m is shares and since June 2011 he has liquidated US$6.8m of his holdings in the company that bears his name. There are many reasons why an executive insider might want to reduce his shareholding in a business he runs- many of them personal and nothing to do with fears for the future or anything negative. Miller’s stake in MLR has been diluting ever since he sold 40% of the company in an IPO in 1994- a move that cleared company debts and netted Miller about £5m.

When Craig Whyte swept on to the Scottish football stage, we were bombarded with ripping yarns about his “off the radar” wealth and billionaire status from the cream of Scotland’s sports journalists. Contrary to hack-mythology, Whyte’s background had not been expunged from google. In fact, just a few hours investigating Craig Whyte’s background were enough to get Celtic supporting observers into a frenzy of anticipation of what was to come. The Scottish sports media appear to not have learned much from this experience. A campaign to blindly back Bill Miller is gathering pace despite few knowing anything about the man or why anyone not imbued with a taste for Scottish football would seek to acquire one so late in life.

On Miller being designated ‘preferred bidder’ by Rangers’ adminstrators, it was clear that the task of establishing the facts would once again rest on a handful of “internet bampots”. So I took a first-pass at researching Miller Industries, Inc. (MLR: NYSE). In summary, those hoping for a repeat of last summer’s hilarity will be a bit disappointed. So far, it seems unlikely that we will find a string of empty shell companies and boiler-room operations. Miller Industries, Inc. appears to be a well run, normal business. In the last few years, on the back of the largesse of the US government, it has grown revenues and profits substantially. It endured the economic collapse of 2007/08 without reporting a loss (no mean feat for any metal bashing firm during that period). Crucially, Miller Industries slashed costs and overheads to meet adverse trading conditions early enough to avoid getting swept away in the financial crisis. Today, the company is debt-free.

This company survives in a tough market that is about to get a lot tougher.  According to the company’s 2011 annual report, they do not anticipate a continuation of the US government spending on all manner of towing equipment. Uncle Sam accounted for 27% of their business last year. The prospect of losing such a massive end customer explains why the company’s share price is so low (finance jargon warning: $15.75 per share, a trailing-year P/E of 7.5 which is about half the price of the US market as a whole just now). However, overhead appears to be under control and while profits will almost certainly take a dive in the coming couple of years, this looks like a business that is used to expanding and contracting to suit demand. It should weather any downturn.

If Miller does complete a purchase of the assets of Rangers FC (In Administration)- and this has more than a few obstacles to cross before it is a done deal- Scottish football could do worse than have rational and conservative manager at the helm of what will certainly grow to be one of the biggest, if not the biggest, clubs in the land. Scottish football needs a clean break from the varying degrees of irresponsibility that began with David Holmes’ “Souness revolution” in 1986. If Bill Miller is the man to bring détente to the financial arms race that has killed Scotland’s ability to develop its own talent, great. However, there is one blindingly obvious question not getting any air in the media: why on earth would he want to?

Running any Scottish football club conservatively will not be fun or glamourous. If you invest £11m, you will be very lucky to just get your money back. Most Rangers fans (Celtic fans too for that matter) care nothing for the virtues of financial restraint. Raised on Laudrup and Gascoigne, the crowds at Ibrox are unlikely to give much time to a management team that cannot beat “the other lot” year in, year out. If success is to be measured in terms of a solid balance sheet, owning Rangers will be a thankless task.

Motivations for wanting to join the Scottish circus will either be a life-long love of a particular team or it will be financial. Presumably Miller sees a money-making opportunity that few others see. In the absence of an asset bubble or finding a fool willing to part with a lot of money for your shares, profiting from such an investment will take the form of creating annual earnings that exceed your cost of capital. This will not be the stuff that fan dreams are made from. It will mean patient youth development and lots of failed efforts to blood young players. It will mean selling stars in their prime rather than re-signing them on lucrative contracts. Even then, it is hard to imagine that the profits taken home by any club owner will justify the financial risk and effort involved. There are much easier ways to make money than in the Glaswegian goldfish bowl.

Why are the media not grilling Miller on why he would want to be involved at all? How did he hear of the Rangers opportunity? What is his exit plan? (I mean no slight on the financial prospects for newco-Rangers in particular. Celtic are also an investment for the emotionally attached rather than a safe bet).

Miller is obviously not a poor man. Yet, he does not appear to have the f-you money required to casually drop £11m on a strange game in a small far off land.  One would imagine that someone would require 10-20 times this amount in net worth before you could consider risking £11m in cash in such a speculative venture. I have seen no evidence that Miller’s personal wealth comes close to £100m (but I have not finished looking). Rich? Yes. Gamble on a foreign sports club rich? I am not so sure.

In the absence of convincing answers to these questions, suspicions about the real motivations behind Miller’s move will continue unabated. Some think that this is an attempt to pressure Whyte to accept a nominal offer for his shares in a CVA before they become worthless. Other theories point to Miller being a front for someone else. As with Whyte a year ago, when the basic story just does not make sense people should keep asking questions.

Rumours

“There are a terrible lot of lies going about the world, and the worst of it is that half of them are true.”  
Winston Churchill

Rarely has the rumour mill surrounding our national game been churning at this speed for this long. In the information gap created by a lack of real news about the Big Tax Case and the daily dollops of PR exaggerations about Rangers next saviour being smeared across the print media, something has to feed the insatiable demand for information. Scottish football, especially in its Glaswegian form, has long been a fertile breeding ground for rumours.  There has always been a sense that fans were not getting the whole story through the mainstream press and the dramatic events of the last year have done nothing to slow the production of the finely milled football myth.

One legend that keeps coming back around on radio call in shows is the one that says HMRC has recently acquired some kind of legal power to apply the unpaid tax bills of liquidated firms to their “phoenix” successor companies. This is just not true.  (If the people claiming it to be true could also please stop citing this blog a source I would be eternally grateful! ) What is true is that HMRC now has the ability to demand a deposit from high-risk companies where it is believed that there is a high risk of non-remittance of withheld PAYE and national insurance. That is a wildly different proposition from actually being able to force a new legal entity to pay the tax bills of an old company- and if a newco-Rangers board does not contain Craig Whyte there is no reason to think that a newco-Rangers would be considered high risk.

Another rumour getting a lot of air play yesterday was that Rangers might go into liquidation this week. In the bizarre world of Rangers at the moment it would be a fool who dismisses any rumour out of hand, but I must confess to thinking that this is highly unlikely. (For the avoidance of doubt, I have no behind the scenes information on what is being said in the private conversations of the joint administrators). It would be a major embarrassment for Duff & Phelps if they were unable to keep Rangers FC trading until the end of the season. With all of the legal powers to cut costs available to them, this should, and would, have been priority number one. As pointed out by the excellent @tonymckelvie on Twitter, there is almost £2m available (11% of the total) from the SPL cash pot for the team that finishes 2nd in the league. (Another 4% is given to each team in the league just for participating. I am assuming that this is distributed earlier in the season). Given the size of offers being reported for Rangers, an extra £2m for the creditors is not to be discounted lightly. So, I am sceptical. If Rangers were to collapse entirely before the season ended, it would be a disaster on such a scale that it would presumably cause even SPL chief Neil Doncaster to roll up the red carpet that is currently waiting to welcome  a newco-Rangers back into the fold without questioning.

Rumours develop where our demand for the information we want to hear exceeds the supply. Even if I get 20 extra tweets a day asking “when will we know the tax case result?”,  I will still not know. It could be today. It will likely be within the next month. However, in theory, we could be waiting for months. Rumours of a 90-day deadline for a First Tier Tribunal (Tax) to publish its findings were simply not true.

Until the crisis affecting Rangers (and the Scottish game more generally) finds some form of resolution and the situation stabilises, we can expect every casual remark and poorly chosen word to spark a frenzy of analysis and fresh innuendo. As tiring as it has been, I see no let up in the drama in the coming weeks. I do hope that I am wrong. One way or another, I just want this story to come to a conclusion.

Bear With Me

Once again I have to apologise for being a terrible host. The number of unmoderated replies piles up, readers become frustrated at the lack of updates, and I have started receiving complaints saying that I am letting people down with teasing with promises of exposés that are always in the future.

On the moderation issue, I put my hands up. Between real life and researching materials for this project, it leaves me with little time to participate in discussions let alone referee them. All I can say just now is ‘sorry’, but there is not a lot I can do in the short-term. If someone wants to start a messageboard to allow the various discussion topics from here to be handled by a larger number of people, we can talk about how we could manage this technically. If seriously interested, let me know. However, I can see this presenting difficulties and distracting from the blog itself- which (no surprise) is the bit I like most, but this project has grown to become something in which many people have an emotional claim. So I am open to ideas from anyone who thinks they can solve the concurrent problems of my penchant for privacy, the need to have several people act as moderators, and maintaining a sense of togetherness for both blog and replies.

On the charge that I am not delivering on the teasers that I throw out, I have always said that most information will be withheld until after the FTT findings are published. Nothing has changed. Do not expect a deluge of information in FTT+1. There is value in timing the release of information to apply pressure on those who would rather that this story not be told.

Be assured that there is a lot of information to come out. Some will come out in the mainstream press, some on here and other blogs, and other details will be best explained in a book. Just be patient. Pulling a lot of disparate threads apart to understand what has happened at Rangers over the last decade has been exhausting. The hit-and-run nature of Twitter has made it easier to try to communicate while doing several different things at once- and I did throw out some new information about the extent of Rangers’ use of the EBT scheme- How many players in the Rangers squad (1st team and subs) that won the SPL title on the last day of the season on 22 May 2005 had an EBT?  That is correct- every single one of them.

Most commentators on this saga believe that Rangers will be found to have acted illegally and were breaking UK tax law in their implementation of the EBT scheme. If / when this is formalised, the SFA & SPL face an issue which cannot be parried away without causing permanent damage to the Scottish game. The widespread use of the EBTs at Ibrox means that there cannot be any serious debate that Rangers fielded players who they could not afford during this period. Using illegal means to fund their playing staff was cheating. It is that simple. If by some miracle a CVA happens and Rangers survive intact or if the SFA/SPL allow Rangers’ membership share to be transferred to a newco, then punishment must be meted out. That punishment must be proportional to the fact that other clubs suffered huge financial losses as a result of that cheating. The punishment must also include consideration of the damage to the reputation of the Scottish game as well. Anything less and there will be little point in watching Scottish football. Anything less and it will be clear that it is a rigged game with a tilted table and loaded dice- all for the benefit of just a single club.

Balance of Probabilities

As we wait (impatiently) for the First Tier Tribunal (Tax) to report its findings on the legality of how the EBT used by Rangers was operated, it might be of interest to discuss some common misunderstandings about the legal processes that will determine the outcome.

The case that will seal Rangers’ fate is governed by Scottish civil procedure.  Years of our lives wasted watching television has armed most of us with a basic understanding of criminal procedure- concepts like “innocent until proven guilty” are infused throughout popular culture. However, civil courts have very different rules.

Rangers FC have been accused by HMRC of operating an illegal tax avoidance scheme (see link for common myth about avoidance).  Following a long investigation, in early 2010 Rangers were sent a number of assessments (tax bills). Rangers appealed them.  In the several tribunal hearings that followed, evidence was presented by both sides and now it is for three judges to establish whether or not Rangers pursued an illegal scheme for more than a decade. I have heard lots of people (including Scottish journalists) make the mistake of assuming that “Rangers are innocent until proven guilty“. They are not. The standard for determining the outcome of a civil tribunal is the balance of probabilities. It is simply a question of whether it is more likely than not that Rangers’ were using the EBT as sham to pay money to players and executives on which they should have deducted income tax and national insurance.

In this case, it seems that the Rangers’ directors, and MIH staff in charge of running the scheme did not understand this distinction. Much of their behaviour appears to betray a sense that all they had to do was establish “reasonable doubt” to avoid getting in trouble. Currently, within Edinburgh’s golf club circuit, there is a widely held view that Rangers will be held accountable for some tax liability, but that the quantum will not be anything close to the huge assessments presented by HMRC. People close to Sir David Murray acknowledge that there was some sloppiness with regards record keeping in specific cases.  They seem to think that the resulting tax bill will be limited to these “one-off” errors- situations where there is no doubt that a contractual obligation was paid through the EBT.

However, the standard for determining the outcome of a tax tribunal is the balance of probabilities. If there is a significant volume of such transactions, the entire scheme can be judged to be a sham.

What determines whether there are enough illegal payments to cast the entire scheme as a sham? It will not require proof beyond a reasonable doubt or any of the other concepts burned deep in the minds of TV crime series viewers. There simply comes a point where there is so much evidence that it is clear that someone is “at it”. I expect that Rangers will be held by the judges to have been “at it”. If (or when) that happens, the real fireworks will begin.

Assuming that Rangers’ actions of the last decade are officially deemed illegal, Scottish football authorities will face the greatest moral dilemma in the history of our game. If I am correct, it is likely that the following facts will soon be firmly established:

• Rangers provided many players with second contracts in violation of SFA rules
• The provisions within these second contracts were in violation of the law of the land
• Rangers fielded players whom they could not have afforded without resorting to illegality

Under these conditions, the debate about ‘helicoptering’ a newco into the SPL to replace Rangers FC would surely change. The idea of transferring the last decade of Rangers’ history to a new company would be like asking for a toxic waste dump to be moved beside your house.

I have developed a genuine empathy for the many decent (but largely silent) Rangers fans whose beloved club has been ravaged by Sir David Murray and his hand-picked lickspittles.  Much of what has been revealed on this blog in the last year serves the common good of all Scottish football fans. However, I expect that whatever common ground exists will open into a chasm over the subject of what the SFA & SPL should do about the recent history of their club.

22 May 2005- is a cherished memory for all Rangers fans. Rangers beat Hibs at Easter Road to clinch the SPL title. Neil Doncaster needs to ask: “How many members of the Rangers squad that day were, or would become, beneficiaries of the EBT scheme?” (Let me help him out- it will be a lot easier to count those who did not participate). The truth is that many of the Rangers squad would not have been anywhere near Easter Road that day without the use of the EBT scheme. If the EBT scheme is deemed to be illegal, the SFA and the SPL cannot pretend that the second contracts held by the vast majority of the Rangers’ first team players during the middle of the last decade were just a procedural transgression of no material impact. On the balance of probabilities would Rangers have been crowned Scottish Premier League champions that day without the use of the EBT scheme?

The future value of winning a championship in Scottish football is in the hands of Stewart Regan and Neil Doncaster. They will face intense pressure from those close to the old regime at Ibrox- and their friends in the media- to sweep these issues under the carpet. That would be a huge mistake.

Quick Recap

Rangers’ administrators yesterday released a communication intended to clarify the club’s financial position for creditors. It is a well written document that clearly lays out Rangers’ recent financial history in a way that does not require any financial training. Yesterday’s posts, on here and across the internet, have covered most of the detail, so I will spare you a redundantly thorough analysis.

With Rangers’ debt level potentially as high as £134m (more likely in the £95-110m range), the only hope of the club avoiding liquidation is to convince more than 75% of the creditors (by value) to accept less than the face value of their debt through a CVA. Much less. If media reports are to be believed, The Blue Knights consortium have offered just £8-10m to keep Rangers alive through a CVA.  The administrators brushed over Craig Whyte’s claim to any of this money with just a casual nod to the minimum legal requirements: “the Joint Administrators will conduct an exercise to establish the validity of such security and the quantum of any monies which may be secured in this regard”. Yet Whyte claimed to Channel 4′s Alex Thomson that he is due £30m from any sale of assets. Another series of court dates looms.

In the meantime, assuming that £10m was distributed evenly among the creditors, if the final figure is, say £95m, then for every pound you are owed, you will receive 10.5p. Better than nothing? I am not sure. If Whyte’s claims are rejected, it is likely that a greater sum could be obtained in liquidation. (It has been reported that others have bid as high as £25m on the basis of an asset sale to a newco and the liquidation of The Rangers Football Club plc.

In short, it is hard to make sense of the claims that a CVA is still a viable option. In Duff & Phelps first legally binding communication, they elected to not repeat the intimations spread through the media by Rangers’ PR firm that HMRC was ready to do a deal that would save the day and that the Treasury had lent its support for such plan. Why did they miss such a golden opportunity to calm he fears of fans and other stakeholders? Is it possible that the same people who brought us Craig “billionaire” Whyte were not telling the truth? 

For all of the fascinating detail provided yesterday, the reality is still that Rangers’ most likely exit from the administration process is through an asset sale to a newco and with liquidation of the existing Rangers FC. The administrators have done a fine job of trying to put ‘lipstick on a pig’ by talking about hybrid liquidation and keeping ‘the business’ going while allowing the company to die. It is their job to maximise the money raised through this process and, despite widespread grumblings from all sides, they appear to be doing a reasonable job in difficult circumstances. (Though suspicion over their motives and every move is quite understandable). In the end, reality will have to hit and all of the spin in the world will not change Rangers’ trajectory).

With 4,000 EBT cases coming along in Rangers’ wake, HMRC will surely be hoping for an example to be set that encourages most of them to settle. Doing a deal with Rangers that accepts 10% of what is owed after allowing a decade of fiddling will do little to dissuade others from appealing their cases to the bitter end. The actual amounts received from the Rangers case will likely be immaterial to HMRC’s hopes for collecting on EBT users as a class.

On a lighter note, my Monday afternoon was rudely disrupted by tweets and texts telling me that this site was down. Initial investigations seemed to confirm my worst fears that we were the recipients of a Denial of Service (DoS) attack. For the princely sum of about £3,000, hackers can be persuaded to deploy a variety of tools designed to prevent anyone from accessing a web site. After a flurry of phone calls and emails to a number of experts in this field, it turned out that we were not a chapter in a spy-thriller after all. A mis-configured host server is apparently to blame. So no James Bond action here. Just a problem that was uncovered through boring geekery,