Yet another 24 hours


Nick Nolte and Eddie Murphy might be forgiven for thinking that they have a another sequel coming up if they were to have the misfortune to stumble upon any form of Scottish sports media today. The rumours are flying fast and thick and the ‘Comments’ feature of this blog seems to have become a dumping ground for a lot of them. Keep them coming. Even the ones I cannot post are at least very entertaining. Best of all are the guesses at my identity. I have had everything from Graham Speirs to Phil MacGiollabhain.

Anyway, what to make of today’s high tension non-event? I have tried to develop theories that would explain all of the data, and the only scenarios that do this would look like the plot of a John Grisham novel. However, in a decade that started with Enron & Arthur Andersen and saw the creative fiction of the mortgage-backed securities industry near its end, it would be difficult to dismiss even the most elaborate of Machiavellian schemes as possibilities in the on-going Rangers takeover saga.

On the other hand, if Occam’s Rasor is at work, the simplest explanation with the fewest leaps of faith will be the most likely to be true. The simplest explanation for what we have seen is that Whyte and Murray are simply a couple of barrow boys who think they can pull a fast one on the other, but are both enjoying the benefits of publicity and distraction that come from drawing this process out. Ignoring the hyperbole of the “leaks” to the media pack’s dimmer bulbs, this hypothesis says that they will have deferred detailed agreement on the thorniest issues until last- both hoping to have momentum bounce the other in to necessary concessions. The thorniest issues remain: price for MIH’s shares and the tax bill.

There is simply no getting over the fact that it would require a complete idiot to pay more than a pound for all of Rangers’ shares just now. However, Sir David Murray’s track record in separating fools and money does go back a long way. Anyone who could get Joe Lewis to throw away £40m for 20% of any SPL club would feel confident in his ability to get the better end of any negotiation. If he can get anyone to hand over several £m for MIH’s shares, it would be a great piece of brinksmanship. However, if all that is on the table is a token, the old steel trader will probably want to take a chance on a better than expected outcome from the tax tribunal. In the meantime, the negotiations circus will provide a nice distraction.

Less is known about Craig Whyte. Much less. However, the record indicates that he is a trier. He may have picked up the scent of a motivated seller and might feel that with time ticking down, that he can secure control of Rangers’ shares for a nominal sum. He would feel that time is on his side and that this builds the pressure on the seller to take any deal. If he can acquire the shares for next to nothing, he has bought a an out-of-the-money call-option on the tax case. If Rangers lose, nothing much is lost. If Rangers win, he just made a huge return. In the meantime, the negotiations circus provides some very favourable publicity.

At some point in this tale, after achieving agreement on countless red-herrings, they have to agree on the matters of substance: a price for the shares and responsibility for the tax bill. If they have just deferred the details on these topics, reports of imminent deals will have been far off the mark. To expect Whyte to part with substantial cash for the shares and to accept the tax bill risk would be to take him for a fool. To expect Murray to hand over the shares for a pound and to give a water-tight, cash-backed, guarantee on a £60m potential tax liability would be to expect him to be more panicked than perhaps he is.

On balance, this narrative is the simplest explanation for everything we have heard. That the negotiations are nowhere near as advanced as the feverish announcements from Scottish ‘churnalists’ would have us believe and that the immovable object must meet the irresistible force: each one hoping that the other blinks and a bargain is had.
I revert back to the business fundamentals of this predicament and say that any deal to sell Rangers before the tax case is resolved requires at least one fool or an elaborate deception. It just does not make sense otherwise.

About rangerstaxcase
I have information on Rangers' tax case, and I will use this blog to provide the details of what Rangers FC have done, why it was illegal, and what the implications are for one of the largest football clubs in Britain.

17 Responses to Yet another 24 hours

  1. ramsay smith says:

    Why would Whyte incur the cost of a due diligence exercise without agreeing a price first?

    Unless he did and the due diligence unearthed something unexpected.

    And didn’t Ellis (who is supposedly a co purchaser) not carry out due diligence the last time he was involved?

  2. How much has he spent? Why would you believe what any Scottish journalist says given their impecable record of being wrong on this story for several years now.
    Anyone can register on the Takeover Panel board as a ‘potential bidder’ for Rangers. It costs nothing as far as I know.
    Price is usually the last thing agreed any in any deal. It is the most important issue, so it is a common deal-making convention to iron out all of the other details to understand the quirks and nuances and then then get into the ring and fight it out for the economic value of the transaction. “Nothing is agreed, until everything is agreed” implies that you build common ground on the easy stuff first and use that momentum and greater understanding of interests to help find a creative win-win solution to issues that would have seemed intractable before.

    This theory implies that he fancies his chances of actually making a deal. So some cost might seem worthwhile. However, the due dilligence does not have to cost much. Due diligence on Bear Sterns was completed by a team of JP Morgan investment bankers in a single weekend. Many entrepreneurs have the training and experience to do most of the work. Consultants would only be needed for specialist areas (taxes? ;-))

  3. Ray Charles says:

    Surely the simplest explanation would be that we have imperfect information and the takeover will go ahead.

    Making an analysis from the outside without having access to all pertinent knowledge could mean that key variables are missing from the information on which your conclusions are based.

    I can’t get my head around why any of it makes sense either.

    However, I am know beginning to believe the takeover will go ahead.

  4. Kevo says:

    Maybe the Fakeover will be pushed through this morning? After all, it is April Fools Day!

  5. Mick says:

    I dont get this problem with the unpaid taxes. If they did set something up where the employee’s didnt have to pay the correct amount of tax. If found that this scam was wrong, surely its up to the employees to pay what they were suppose to and not rangers. Its not as if rangers deducted sums of money and didnt pay the tax man. These employee’s didnt pay the correct amouint of tax. Surely tax man goes after them, with rangers getting fines for not doing it properly in the first place.

  6. Glover says:

    The most laughable suggestion I heard in a BBC debate yesterday was that Craig Whyte had spent £200K on diligence. I would have thought that £100 would have covered the Experian report that would have told you all you need to know. Another example of Journos not really examining the facts.

    Ok not as simplistic as I have suggested but no where near the value promoted by the Scottish media.

  7. paul says:

    http://www.londonstockexchange.com/exchange/news/dow-jones/news-detail.html?newsId=20110401SN000592

    Rangers figs

  8. BromleyBhoy says:

    Interestingly, the interim accounts are out and this time they include (a very small) provision to HMRC.

    It’s important to note 2 things:
    1) They are unaudited – the board can place any figures into the public domain as long as they can argue they believe they are a fair reflection of the financial position
    2) If I were the board and knew the public were aware of the HMRC case it would be awfully tempting to put a very low valuation down – arguing that I thought it was very unlikely anything had to be paid AND by announcing a very low number it allays people’s fears (everyone is aware something is happening with HMRC and idiots will assume this is the full amount demanded and it was all hype……)

    Of course I’ve always been the cynical type….

    B

  9. mutley says:

    Hi, think the blog is great.

    Anyway, was looking at the finance criteria for licensing and came across some things which I have included below.

    We have this morning seen UNAUDITED accounts provided to the LSE by Rangers.

    As we can see from the finance criteria, they must provide annual AUDITED accounts and because their year end is more than six months away, AUDITED interm accounts.

    So either they have provided the SFA with the same UNAUDITED report that we have access to (in which case they fail the UEFA licensing criteria), or they have provided the SFA with and AUDITED report which differs from the figures we have seen.

    Is there any significance in that?

    Are they allowed to produce to different sets of figures?

    I don’t know

    From the SFA Finance Criteria

    8.1.3
    Interim Financial Statements that have been Reviewed

    Refers to the statements provided by clubs where the statutory closing date of the club is more than six months before the deadline for submission of the list of licensed clubs by the SFA to UEFA on 31 May 2011.

    Where applicable, additional financial statements covering the interim period must be prepared and submitted. These must cover the interim period up to 1 December 2010 as a minimum and must be reviewed (as defined by UEFA) by an independent auditor.

    The auditor’s review shall be conducted in terms of International Standard on Review Engagements (ISRE) 2410, “Review of Interim Financial Information by the Independent Auditor of the Entity”. A specimen auditor’s report is shown in Template Letter A 48.

    SPL clubs are advised that this is a UEFA mandatory criteria and any failure to meet the requirements stipulated shall mean that the club is ineligible to participate in the UEFA Club Competitions in UEFA season 2011/12 i.e. at the end of the 2010/11 domestic season.

    8.1.5
    No Payables Overdue Towards Employees and Social/ Tax Authorities

    Clubs shall demonstrate that, in respect of contractual and legal obligations with its employees, it has no payables overdue towards employees and social/tax authorities as at 31 March 2011 as a result of contractual and legal obligations that arose prior to 31 December 2010.

    It may be acceptable for the payments to be outstanding passed this 31 March date outwith the terms mentioned above but only where the outstanding amount is subject to a not obviously unfounded dispute submitted to a competent authority (see Annex VIII of the UEFA Regulations).

    To meet this requirement the club shall prepare a List of Employees (as per definition) showing any overdue sums. This shall be reviewed by an auditor. The requirements for the List and the auditor review are detailed in Schedule A 50 and Template Letter A 50.

    SPL clubs are advised that this is a UEFA mandatory criteria and any failure to meet the requirements stipulated shall mean that the club is ineligible to participate in the UEFA Club Competitions in UEFA season 2011/12 i.e. at the end of the 2010/11 domestic season.

    8.1.8

    Duty to Notify Subsequent Events

    Clubs shall promptly notify the Scottish FA in writing about any subsequent events that may cast significant doubt upon the clubs ability to continue as a going concern following the licensing decision from the Licensing Committee in either April or May 2011 and covering the period from then until 31 May 2012.

    SPL clubs are advised that this is a UEFA mandatory criteria and any failure to meet the requirements stipulated shall mean that the club is ineligible to participate in the UEFA Club Competitions in UEFA season 2011/12 i.e. at the end of the 2010/11 domestic season.

  10. Paul says:

    Is this provision to HMRC not a new bill relating to a different period? It seems that way.

  11. It’s for a completely different issue.

  12. MF says:

    The majority of us myself included are not financial experts so could you tell me please what do you think would happen if say in 6 months time RFC are hit with a large , say 50 million pound bill from this case. Given that RFC have owed more in the past what do you think would happen to the club?

  13. Boab says:

    The issue here would be who it was owed to, in this case HMRC.

    It is my belief that, if the scenario you paint arose, HMRC would seek a winding up order and Rangers would place themselves into Administration to survive.

  14. MF says:

    OK ,what does administration mean ,how does that protect RFC , would RFC be able to pay it up and continue playing football, or could a buyer make an offer for the club to HMRC for less than tax bill or would HMRC slowly asset strip RFC bit by bit till the full amount was payed?

  15. I had wanted to spread the explanation for all of these issues out of a few weeks, but it appears that events have accelerated the need.
    There goes my weekend!

  16. Auldheid says:

    I have been asking on CQN (since Feb when I read the licencing rules) similar questions about the SFA’s ability to just rubber stamp this year’s licence application. However because I am probably looking for what I want to find, I have been more than ready to defer to more experienced opinion. The blog owner in answer to what at any time would be a far fetched theory of mine a day or two back on what lay behind the Whyte takeover was pretty confident the application would be granted because of the discretionary nature of the licencing rules and an unwillingness to prevent Rangers playing in Europe and I am happy to defer.

    However the announcement of a previously undeclared tax provision, so called until it becomes a liability, and the absence of an auditor qualification re Rangers ability to continue as a going concern when it is perfectly clear that possibility exists for next season 2011/2012 and your point about the rules requiring audited accounts (good spot btw) tells me that the process of granting a licence, which need not be complete until end of May, requires the SFA to make a statement on the process, the acceptance of unaudited accounts and how the SFA justify not considering Rangers as a going concern and on what basis a licence is being approved. A bit of transparency.

    This latest tax issue at what point does it have to be paid before 8.1.5 applies?

  17. Auldheid,
    Need to be careful we don’t get ahead of this. The “auditor” requirement is that the accounts are subject to a review by a CA. (This is the same as signing off on them in an audit, just with a lower statistical confidence). The SFA have said (in OTR communications) that the accounts which have been submitted to them have been signed off by Grant Thornton. The problem is that we don’t know what they say. I expect that they are very different from the unaudited, unreviewed Interim Report that was posted for public consumption today. I think that the best party to ensure that the rules have been followed will be Celtic FC (or whomever would take Rangers’ place if all is not in order). Unless someone leaks the SFA version, we fans will never know. [Anyone wishing to leak it can make a blog post authenticating and providing contact details. It will not get published and confidentiality will be guaranteed].

    The Other Rangers Tax Case is not yet as you think. It is not an admission of guilt or an acceptance of the bill. (See new post). Like the EBT case, it will not count as a “crystalised” bill until they have at least been through First Tier Tribunal. At that point the clock starts ticking, but the next time the SFA will inspect for a UEFA license will be 31 March 2012.

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