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.