25/05/2011 578 Comments
“Deceptive”: adjective Giving an appearance or impression different from the true one; misleading.
"What they are saying is 99 percent crap" Craig Whyte
25/05/2011 578 Comments
“Deceptive”: adjective Giving an appearance or impression different from the true one; misleading.
24/05/2011 240 Comments
The news that Alastair Johnston and Paul Murray have been removed from the Rangers’ board, swiftly followed by reports that Martin Bain and Donald McIntyre have been suspended pending an inquiry into financial irregularities, is somehow still stunning despite its predictability. What makes these events remarkable is the lack of decorum. Whyte was always going to form his own board. In fact, I have been surprised that he has waited this long. (Some have suggested some legal i-dotting and t-crossing was required before Whyte could act). However, following most takeovers, the changing of the guard usually proceeds without much of a fuss or fanfare. The rules for how to remove board members varies from company to company, but the mechanics for a new owner to place his own directors on the board should be straightforward. When you own 85% of the company, you can have the directors of your choice. (Dave King’s board seat may be guaranteed by previous contracts related to his original investment). It is the style of this “night of the long knives” that marks a stunning departure for Rangers (or at least a leap back to pre-David Murray times).
This blog has nodded and winked at the extent of wrong-doing by prominent members of the Rangers board. I know for a fact that the actions of some board members would shock even those who has been following the financial fate of Rangers FC closely. At some point this was always going to explode. However, there are more questions than answers about Whyte’s motivations in acting now and in this manner.
Has Whyte had a sudden epiphany after getting access to the ‘real’ behind the scenes information? Contrary to popular myth ‘due diligence’ does not guarantee that a potential buyer gets access to all of the information he requests. The seller always has the right to simply withhold any data of his choice. The only obligation of the seller is to not tell outright lies about the prospects for the firm.
Alternatively, is this just a stage-managed event to portray the previous board as the villains who will be responsible for any failure to deliver on promises leaked to the media during the long takeover process?
Are Martin Bain and Donald McIntyre under investigation for EBT-related activities or is this a separate issue altogether? I can say that the EBT-related activities of board members was not some rogue action secretly executed by one or two individuals. To a fault, board members over-communicated what they were doing. If today’s news is EBT-related, then I would be ready to declare these dramatic moves as a smokescreen to distract from other actions. Every Rangers FC board member since 2001 will have been aware of the EBT. I know of five who definitely had detailed involvement in its operation. Two of these directors remain on the board.
We cannot ignore the fact that as executive directors, Bain and McIntyre will be on significant salaries and will likely have some job security through multi-year contracts. Such contracts can only be terminated for ’cause’. Such cause has to be very serious for terminations to be upheld, but if a case can be made that shows the executive to be untrustworthy, the terminations will stick. This could all just simply be a pretext to fire two highly paid people without having to pay them for the remainder of their contracts.
The refusal of Alastair Johnston and Paul Murray to resign is a further sign of their deep misgivings about the new Rangers ownership. That Johnston broke with the standard cover story about ‘confidence’ over the tax case to express concerns that Whyte had shown no proof of having the funds to pay such a bill would have made his removal inevitable. That Paul Murray broke ranks to try to organise an alternative financing program to thwart Whyte’s advances will also have marked his cards. However, this is just standard corporate politics and normally defeated directors in a hostile takeover fall on their swords. This is inevitable when 85% of the shares are held by one shareholder. That both Johnston and Murray have tried to make as big of a splash on their departures as possible can be interpreted as a warning. I am bound by a promise of confidentiality to a source of information, but I know that Johnston and Murray would have solid reasons (not tax case related) to want to send a warning to the Rangers support at-large.
It will be interesting to see how willing and/or able these four directors will be to speak to the media (old and new). Even if gag-agreements are in place leaks happen in the normal course of events. The challenge will be for the Scottish media to publish their comments. Most Scottish media outlets will want to continue dining on the easy meals of succulent lamb fed from Ibrox. Journalists whose salaries depend on getting their quota of transfer exclusives and interviews with players will fear retribution for printing anything not approved by the new politburo. However, I suspect that Hay McKerron will be busier than they ever imagined in the coming weeks.
23/05/2011 140 Comments
Another Scottish season has drawn to a close with Rangers FC taking the lion’s share of the spoils. With the possibility of qualification for the UEFA Champions’ League and profits for the 3rd year running, it will have been a great financial year for the Ibrox club. That 85% of the shares of such a business should be sold for just a touch more than a millionth of a penny each should not be forgotten. We are left to choose between the image of Sir David Murray as a benevolent team-player who made “yet another” generous gift to the club he loves or a man so gripped by fear for the consequences of his reckless illegality that he would give the club away to get off stage. We are all free to make our own choice as to which we think is more likely. However, those poor souls naive enough to believe that Murray bailed-out to help Rangers fly, at a price of £1 for control of Scotland’s “second-greatest institution” and at a time of strong profits, need to ask themselves: “Why did no one else want to buy Rangers’ shares at such a price?“
As an aside, let us also dispel the myth of David Murray as Rangers’ benefactor. Of the £165m that Rangers lost under his stewardship, not a single net penny was contributed by Murray himself. In fact, when we look at the net balance of related-party transactions between Rangers and Murray’s other companies, businesses from which he took personal cash dividends, it is clear that Murray removed cash from Rangers FC. However, as much as it pains me to say it (as it is what he wants) Murray is yesterday’s man and no longer a moving part in the on-going saga of Rangers FC and their illegal tax schemes. Given the loyalty of the Scottish media to Murray, he is unlikely to ever be blamed for anything that follows.
Next, let us just re-cap what we know to be the facts of this situation:
In a previous post, I covered Whyte’s “reluctance” to be questioned on either the tax case or the source of his funding. Until we know who has lent Whyte (a man of little legally traceable wealth) the £18m to purchase the debt from Lloyds, it is difficult to understand what the motivations of this transaction really are. Why has Whyte rushed in where other angels feared to tread? We will look at a few possible scenarios later this week.
However, before we look at these permutations, I would like to mention the rumour that was circulating this weekend: that Rangers have had a third offer to settle the tax bill rejected by HMRC. This time the offer is apparently for £23m. I know nothing about this. It is possibly true, but I have not heard anything either way. (Previous offers of £4m and £10m have been rejected in the last year. These offers were made by Rangers and were rejected by HMRC). While this rumour is possibly true, a £23m settlement cost on top of the cost of acquiring the bank debt for £18m would put the cost of owning Rangers well beyond any financial logic. With a total invested capital of £41m and a minimum required return of approx. 9%, Rangers FC would have to be capable to returning an average of about £3.7m per year to its owners, and that is before a single additional penny is invested in the playing squad. If this rumour is true, it would rule out the idea that Whyte is a rational financial investor. We would have to look at other motivations for owning this football club.
It would not be unusual for new owners to seek to settle long-running tax disputes with HMRC. If history is a guide, HMRC’s attitude has been to be flexible to new owners on interest and (even more so) on penalty payments where there is a willingness to pay the core tax bill in full. Where a settlement offer requires time to pay, flexibility on historical interest would be harder to obtain, and interest would continue to accrue. If the new owner was someone with a normal history with HMRC it would be easier to imagine that concessions might be made. However, the new owner is Craig Whyte. (At least he is the public face of the new owner). Craig Whyte is a name attached to numerous bulging files in the cabinets of HMRC (and possibly other government departments). A frontman with a famously chequered past? It would be surprising if HMRC would see any approach for a settlement as a chance to turn over a new leaf.
In coming posts, we will look at a matrix of motivations and outcomes for Whyte and the tax case. Despite the efforts of his PR henchmen [google the following phrase: “A self-made businessman (he started an accountancy course but failed to complete it”)], the core facts of this situation have not changed. The Scottish media remain a mixture of spineless cowards and craven paid-off lackies. The tax case remains a threat to the existence of Rangers FC. Until we know more about who has funded Whyte and what he expects to achieve, Rangers FC will remain an enigma wrapped in a riddle.
10/05/2011 193 Comments
Only a handful of days after he completed his purchase of MIH’s 85% stake in Rangers FC for a pound, Craig Whyte has already signalled that it is business as usual. Those who might have hoped for an era of glasnost and some transparency in communicating with supporters about the running of their club, will be disappointed. Craig Whyte is already showing himself to be more Putin than Gorbachev. Hand-picked journalists attending Saturday evening’s inaugural press conference with Whyte were under a three-line-whip from Gordon Hay of Whyte’s PR firm Hay McKerron that there were two subjects that could not be mentioned:
– The tax case
– The source of the money used to buy Rangers’ debt from Lloyds
Draconian penalties were promised for anyone who dared cross these lines. Exclusion from future press conferences and no more “leaks” would be akin to removing life-support from those who have become dependent on succulent lamb from the table of the owner of Rangers. No one crossed these lines. Not one journalist in attendance asked about the only real questions that face Rangers just now.
Whyte chose to address the tax issue in a Rangers TV interview / presentation last night. I guess that it will take him time find pet-hacks with whom he can build the sort of trusting relationships David Murray had with Jim Traynor and Tom English i.e. “if I want it printed, you print it!” So, Whyte took solace in a media outlet which he now owns. Very brave.
Whyte’s statement that he does not believe that there is any chance that Rangers will lose the tax case beggars belief. Either the man is a liar or a complete moron. I doubt that he is the latter. Decoded, Craig Whyte’s statement on the tax case can be seen as an admission that there is no ‘Plan B’ for losing the tax case. The independent committee of the Rangers’ board appear to be right to be concerned about the lack of funding to pay a combination of bills that could reach above £54m.
Even I do not profess 100% confidence in any particular outcome. Much like the OJ Simspon trial, a patently guilty man can be found not-guilty in the face of a combination of excellent and incompetent lawyering. I know that the evidence against Rangers is extremely strong. It is hard to conceive of a logical defence that Andrew Thornhill QC can have offered. But Craig Whyte is 100% confident?
Sir David Murray has gone, but Rangers are still owned by a man who will deploy expensive PR resources to protect himself. It will be interesting to see if he is up for “defending” Rangers’ supporters in the same manner as Murray. Rangers fans should be asking why David Murray gave away Rangers for less than a millionth of a penny per share. A man who was asking for a £6m payout for three years, suddenly decided to give away Rangers FC on the same day that the First Tier Tribunal that would decide the club’s fate concluded hearing evidence? Of course, Murray did it out of a love for the club! That Murray has considerably more provable personal wealth than Whyte should also be a red-flag. Murray was in a better position than Whyte to personally support Rangers. (Of course, over 23 years in charge, Murray took out much more than he put into Rangers. Take a look at Rangers’ ‘related party transactions’ over the last 14 years). The simplest explanation for the deal is that Murray and Lloyds wanted to be off-stage when the curtain falls. Whyte’s motivations? We can only guess. He is either an idiot or his ‘Plan B’ for the tax bill is not one that many will want to hear just now.
Of course, the other issue Rangers fans should ask about is ‘Who is funding Whyte?” The answer to that question will explain whether this is really a rescue or a pillaging. I do not expect the question to be even posed by the Scottish media, let alone receive an honest answer. The same sources who told me on 19 April that Whyte had secured funding and was serious about buying Rangers, have told me that Whyte has contributed very little money personally. The exact terms of the package are unknown. Has Wavetower borrowed the money to buy Rangers? Or are the backers equity investors?
As things stand, Rangers are in as much debt today as they were last Thursday. Rangers’ debt to Lloyds has been purchased by Wavetower. Rangers FC still owe that £18m to Wavetower. (Interest rates may not stay the same). Additionally, Rangers also owe an additional £6m to other lenders and for negative working capital. Nothing has changed except that Murray and Lloyds have left the scene. Perhaps that is a cause for rejoicing amongst Rangers fans in itself, but they might have cause to prefer “the devil they knew rather than the devil they don’t.”
We can expect a media onslaught from Hay McKerron in the coming weeks. Every device to distract and deceive will be deployed. As I have maintained from the start, Rangers’ future depends upon the outcome of the tax case. Some shuffling of commercial paper has not changed that.
06/05/2011 459 Comments
I am in little doubt that, in coming years, at least one book or Ph.D thesis will be written about the takeover saga at Rangers. If the author has any desire to faithfully record the events, much must be made of Scotland’s “Street of Shame”. The most important aspect of this story is the way the journalism profession has plumbed new depths of obsequiousness and fealty. In their fight to be next in the queue to receive the next “another 48 hours” exclusive, Traynor, Speirs, and Tom English have somehow managed to have daily conversations with their masters at Rangers FC, and with MIH’s notorious PR firm, Media House, without ever asking the the crucial questions. (Or more accurately, they understood the issues that must not be discussed lest they lose their access privileges). A host of minor characters from STV, BBC Scotland, and SKY Sports have also jostled with each other to sell their professional souls to be next in line to receive the next carefully crafted mendacious morsel from the Whyte camp.
It is the Whyte “camp” that we will discuss today. One of Craig Whyte’s first actions when deciding to investigate a bid for Rangers was to hire a PR firm: Hay McKerron. The Whyte project was masterminded by Gordon Hay, a partner at the firm and former Daily Express hack. I am told that one the first objectives of the campaign was to convince the world that Craig Whyte is a Rangers fan. That seems like a reasonable objective. It would kill any innuendo suggesting that Whyte is a carpet-bagger intent on asset stripping Rangers FC. It would reassure all concerned that Whyte would be a safe custodian for the club. It would eliminate the need for David Murray to sit in a nice-London-hotel and ask: “ok, gentlemen, before we do this, can you tell me how you’re going to run this club?” With a devoted Teddy Bear at the helm, Scottish football could finally breathe easy. It should be a simple task. You would have Whyte pull out all of those childhood photographs with him sporting the famous blue jersey, interviews with old school friends who could attest to Craig’s lifelong passion for the club, and you could include an interview with the man himself waxing lyrically about those great Rangers days of his youth: Souness’ first game for Rangers; beating Leeds United home and away in 1992; and winning 9 in a row. At least it would be easy if the buyer of the club had any historical or emotional attachment to Rangers.
Instead we saw planted posts on FollowFollow.com claiming to know Whyte back in the old days in Motherwell attesting to the blueness of his nose and a three-line whip to Hay’s journalist friends that their supply of stories would be cut-off if anything with a negative tinge was to be printed. Such actions helped kill a line of enquiry that had many Rangers fans wondering: “Who is Craig Whyte? Is he one of us? Why does he want to buy Rangers before the tax case is settled? ” With journalists refusing to do their job, the information vacuum was filled with a constant stream of “almost there!” and “another 48-hours!” It worked. Rangers fans were marionettes with Gordon Hay as the puppet-master tugging on their heart-strings. Distracted by the excitement an imminent deal, few Rangers fans (and no journalists) have found time to ask the obvious next questions:
Of course, the Scottish media will be rushing to curry favour with the new man. They will need to kiss-up with extra vigour out of fear that they could have their lunch-lines cut as the Ibrox ‘Old Guard’ prepare to exit.
The facts of Rangers under Whyte’s ownership remain the same:
– A tax case that was scheduled to finish this afternoon
– Tax bills of £36m (underpayment and interest) and a penalty case to start in some months
There are no other questions worth asking until Rangers supporters receive honest and forthright answers about Whyte’s plans for the various tax case outcomes. This blog has made clear that the only financial model that makes sense for Whyte is that he will have purchased the debt from Lloyds Banking Group directly (preserving their security interests and preferred creditor status) and will have paid £1 for MIH’s shares. He must then be ready to sell any playing asset that attracts a reasonable price. If the tax bomb detonates, he would exercise his security rights. If HMRC do not agree to just walk away and accept zero (or close to it), the only way for Whyte to claim what is his in law, is to see Rangers liquidated.
Rangers fans also need to understand that the terms of the deal that have been leaked so far would not leave Rangers debt-free. Firstly, only the £18m bank debt will have been paid. That would still leave at least another £6m in other loans (used to pay for Jelavic), capital leases, and negative working capital. If he has just purchased Lloyds’ debt, Rangers’ debt will not have changed at all! They will just owe the money to Whyte and whomever has funded him. (Who would be more reluctant to foreclose on Rangers FC? Lloyds Bank or a shadowy group of barely known investors?)
We should be in no doubt that Rangers are now much more likely to be about to jump out of the frying pan into the fire. That Scotland’s media has been so easily placed in Whyte’s back pocket is a testament to the skills of Gordon Hay. As his company’s own website boasts:
Often keeping something out of the news is as important as securing publicity. As poachers-turned-gamekeepers, we know how the media thinks and how it works. Our easy-to-follow 12-point plan for dealing with the media in a crisis could make all the difference between making or breaking your business.