“Interesting times” for Rangers


The following post was written before news of bombs being delivered to prominent Celtic supporters was released. It seems incongruent to discuss trivialities like Rangers’ financial future while the lives of people are being threatened. These individuals’ crime is to have had the temerity to support their football team publicly and to speak truth to power. Anyone with an ounce of decency, regardless of creed or national origin, would both condemn and take action against those who incite or lend succour to those who would bring such shame on Scotland and our national game. This blog stands with all those who have been threatened. They will never walk alone.

The mythical Chinese curse “may you live in interesting times” seems to have fallen upon all things connected to Rangers FC in the past week. UEFA charges for sectarian singing by Rangers’ supporters at European games, the start of the First Tier Tribunal for the tax case, and yesterday, the beginning of what looks like a blood-feud over reported efforts to become the owner of the club. With so much going on, it is difficult to know where to start, but the freshness of information on the Whyte takeover effort should probably lead. We will cover Dave King’s tax affairs in South Africa in a separate post.

I received credible information in the past three days that Craig Whyte has indeed been trying to buy Rangers. He has been making strenuous exertions to line up debt financing, but does not have the money to make the move on his own. This helps answer some questions about recent reports, but poses several others:
– Why would anyone want to buy Rangers just now?
– Why does a ‘rubber-stamp’ board sub-committee appear to have such influence over a deal claimed to be done with the holder of 85% of Rangers’ shares?

To the first question, this blog has made clear that it views any attempt to buy Rangers would require a large amount of stupidity. However, an alternative hypothesis may be provided by the answer to the second question.

Murray International Holdings Ltd (MIH) currently owns 85% of Rangers’ shares. On the surface this should be a simple transaction. Agree on a price to which MIH will sell its shares and it really becomes a “done deal”. MIH is effectively owned by Lloyds Banking Group through the 165m in convertible preference shares issued to the bank’s private equity arm. So nothing can happen within MIH , in practice, without the bank approving. It is reported that the Lloyds wants to be free of the albatross that is Rangers and is insisting that any sale comes with a complete clearance of Rangers’ debt. So, the reported deal that Whyte is offering, clearing the debt and paying a little for the equity, should be a no-brainer. Whyte is obligated to offer the same price per share to every shareholder, but that would likely be pennies per share. It would not matter if not a single other shareholder agreed to sell. With MIH’s 85% of the shares, you own Rangers FC to a greater extent than Sir David Murray (norminal owner of MIH) ever did.

Which brings us to the strange situation of a ‘rubber-stamp’ board with no authority apparently wielding the authority to derail a deal between a willing buyer and an enthusiastic seller. As we have maintained from the beginning of this blog, what Rangers’ fans are being told and the truth about this situation will be very different. So it seems that the answer lies in the question: “What can you not do with 85% of the shares of a company that board support might grant you?”

Let us start by demolishing the ignorant and false statements made on Radio Clyde last night by Roger Hannah. This pathetic excuse for a journalist must have set a new record for the sheer number of false statements made by anyone in a single broadcast. I do not expect football hacks to understand corporate finance to any degree, but to not even know SPL rules regarding point deductions for administration and to bluster as if you do, is just embarrassing. His other claims that Dave King’s tax troubles in South Africa have been resolved are at variance with the facts. (Roger, why not just say that you do not know? Why just fabricate “facts” that provide a comforting narrative to Rangers fans in the face of disturbing truth?)

So we come back to the question: why would an owner of 85% of a plc care about the opinion of a board of directors that he can fire five minutes after concluding the deal?

The answer probably lies in the arcane nuances of The Companies Act. The only provision of this act that confers power on the missing 15% of Rangers’ shares is “you have the right to apply to court to object to a variation of class rights“. Unlike the feckless Roger Hannah, I will not pretend to understand all of the nuances of this aspect of the law when in fact I do not. In truth I post this information here in the hope of attracting input from people with more specific expertise than I have. However, I can speculate what is going on.

What is in this for Whyte:
It would make no sense for Whyte to borrow a lot of money in his own name and to use it to buy Rangers FC in advance of the a decision on the tax case. If Rangers lose, as seems likely, he would lose his shareholding and would be left personally bankrupted by the debt. It would be a double-crunch and would be breathtakingly stupid. However, the Glazer model is instructive. If Whyte is able to move the debt to Rangers FC he would not be personally liable for its repayment in the event of the tax bill crushing the football club. In fact, under such a condition, if he gets MIH’s shares for next to nothing, it would become something akin to a ‘synthetic call-option’ in financial jargon. In plain English, it would give Whyte a 100/1 bet on the tax case. If Rangers lose, he did not bet much and would not pay for the downside. If Rangers manage to win the tax case, he would be able to sell the shares for something close to a £15-20m rapid profit. The challenge is in getting financiers to lend money for the venture, and this may be where the need for board support comes in. The lenders would want to make sure that they have super-priority over all of Rangers’ assets in the event of administration and liquidation. Is it possible that to provide the super-priority required to assure lenders that they would get their money back, and could participate in the bountiful profits of the tax case going well, that the rights of ordinary share holders in Rangers FC would need to be modified? This would require that Whyte owned >85% of the shares to guarantee his prospective backers that their deal was foolproof and the MIH shareholding falls short of this threshold. Just some informed speculation, and I would welcome comment from those with experience in the significance of this or other thresholds.

Such a deal would mean that Whyte was in for a quick kill. His ownership would be brief under any circumstances: rapid progression to administration or a quick profitable sale. There would be no need to squander money on working capital. Rangers, the football team, would be left to twist in the wind. Thoughts anyone?

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.

168 Responses to “Interesting times” for Rangers

  1. Boab says:

    If he bought the stadium then Rangers would have the money. So it would actually be good for HMRC as they could get paid from available funds. I’m assuming the sale would be for the £120m that the stadium is valued for in Rangers books. So that would easily cover the debt to Lloyds and the potential debt to HMRC.

  2. Mark Dickson says:

    The obvious concern is that given Whyte’s seeming involvement in numerous companies that have been in varying stages of bankruptcy he must be picking the bones out of these companies before bankrupting the remaining husk of what remains – is there a very real danger that HMRC will get shagged for a second time? ie first time when RFC didn’t pay the due taxation but again for a second time IF Whyte is able to squirrel away Rangers meaningful assets leaving only a fraction ie some fitba players contracts left for the taxman?

  3. Slimshady says:

    A creditor of any company that transfers assets out of it for less than market value can have recourse to the courts either to have the transaction declared void or to ensure that the company receives full market value for the assets.

    The creditor can only go after the company which owes it, unless for example another associated company has given a guarantee. So HMRC could not go after Craig Whyte personally or the entities he sets up to hold the shares in RFC.

    Of course, that doesn’t preclude HMRC from taking an interest in Craig Whyte himself as and when he files his own tax returns. How he made his money, and where he keeps it, are still something of a mystery despite the “best” efforts of Scottish journalism..

  4. Mark Dickson says:

    Boab,

    Lloyds Bank (under their Bank of Scotland guise) already have previous form for trying to engineer or force the sale of a football stadium to ensure their debts were repaid – in 2004-05 thay had Chris Robinson at Hearts try to agree a deal to push through the sale of Tynecastle to Cala Homes to get their £15M back – it was only the belated appearance of V.Romanov that prevented that deal from happening at Hearts bank debt was transferred from HBOS to Romanov’s own bank. Could part of the whyte buyout be that he pays £6M to MIH for the shares and £20M to RFC for the stadium & land properties which is immediately used to clear the bank debt to Lloyds?

  5. Mark Dickson says:

    The only way Whyte or P.Murray/King would proceed with any further investment in RFC at this moment in time would be if they had a mechanism for preventing the majority of their investment from being wiped out by a massive tax bill. Murray wants his initial token £6M back and Lloyds want their circa £20M bank debt paid back and they are the ones that are controlling the sale and will decide which bidder wins. It simply cannot be the case that the reported price of £26M for MIH shares stacks up – they would have to be paying a lot less than that for RFC unless some kind of asset/debt swap is part of the deal to protect their investment against the taxman?

  6. Mark Dickson says:

    The only logical conclusion that the HMRC tax-bill has never been a deal-breaker for Craig Whyte’s takeover bid is because if they can then Whyte/MIH/Lloyds will try to structure the deal so that none of them will suffer any major financial loss if the tribunal and appeals go against RFC and they are landed with a huge tax bill.

    The proposed deal must clear Lloyds debt, give Murray his token £6M and give Whyte control of RFC without the risk of him losing his shirt and his investment wiped out. It seems the only logical conclusion to me that the bulk of whytes money will go towards buying Rangers assets and only a small amount for the football club. As it will be RFC responsible for any tax-debt this would limit Whytes exposure to only whatever he’d agreed to pay for the football club and not the whole amount of his investment.

    Nobody is worried too much about a huge HMRC tax bill becuase nobody – Whyte, Murray nor Lloyds has any intention of paying it. There can be no other rational explanation!

  7. Boab says:

    If Craig Whyte buys the shares in Rangers, then transfers the assets out of the company in order to avoid paying an established tax debt then I am absolutely detain that HMRC will take action against the transaction, Rangers, and Craig Whyte. Unless the transaction shows a reasonable price being paid to Rangers.

    It’s that kind of thinking that got Rangers into this whole mess in the first place. It’s that type on non-compliance which has meant that they could end up paying 100% of the tax as a penalty, costing them millions of pounds, rather than just paying the tax they owe, with commercial rates of interest from when it was due.

  8. Mark Dickson says:

    Boab,

    What if it happens the other way round beofre RFC is sold? ie MIH(Lloyds) owned RFC sell Ibrox & Murray Park etc to Craig Whyte and RFC then immediately use that money to pay back the bank debt to Lloyds as Lloyds hold security over them and are entitled to that money, MIH then sell RFC to Whyte for a small amount (say £6M) …… Craig Whyte would then own Ibrox and Murray Park but also own Rangers Football Club.

  9. Boab says:

    Ibrox Stadium is valued at c£120m in Rangers accounts. Are you suggesting that selling it for £20m could not be viewed as insufficient consideration. A sixth of Rangers own book value.

    I don’t see how it would help very much anyway. If you don’t think it’s worth anything to anyone else then it doesn’t effect very much. If a tax debt is established then liquidating the assets will just mean selling off the entire squad, plus Murray Park. How do you envisage rangers Recovering from that and where would the money come from to replace say 20 players, and get a training facility.

    What Rangers need to do is stop fannying about with “clever” ideas and just run their club properly.

  10. I am coming around to this view Mark and the outcome will be the worst possible one for Rangers fans.

    Although, I doubt that Murray is getting much (if anything). I am preparing a new posting that will go into more detail.

  11. I STILL See No Subs Except.... says:

    An interesting scenario, which does explain some of the “crazy logic” associated with any deal at this stage.

    Big problem for RFC is: doesn’t this leave RFC with effectively no tangible assets other than players, but a £54M liability wrt HMRC?

    Liquidation would be almost certain in those circumstnaces, surely?

  12. curious observer says:

    The worst possible thing I could think of from a Rangers perspective would be a wrapping up of “Rangers” as an entity. Having to reform as a new club with 0 titles, 0 history. All the worse if it’s in a lower division. Is there something worse than that?

  13. tomtom says:

    Can any of you more knowledgeable folks out there explain to me the tie up between “The Rangers Football Club” and “Murray Sports”. Both are listed as having as their principal activity the “operation of a professional football club” and they both post annual results. In addition what constitutes the fixed assets of Murray Sports (currently shown as just under £12m)?

  14. Lord Wobbly says:

    Glad you’re back to the topic at hand (no matter how diverting the interruptions have been). However, if you’ll indulge me for a moment (apologies, I’m fairly new to the Interweb and am like a wide eyed child just now), I dropped into Rangers Media for the first time and happened upon something I found incredible…. some Rangers fans referring to the “mhedia” (yes, that is a Bhoy style ‘h’) and some of them looking forward to a triple celebration over the summer…. a league win, a takeover and a victory over Her Majesty’s Revenue & Customs. Say it ain’t so! I’ll settle for 2 out of 3.

  15. Ian Ferguson says:

    Hi Mark,

    I think you are hitting the nail right on the head.

    It is going to be a seperation of assets from debt with RFC worth a minimal amount but owning All the debt.

    i asked earlier if the land around Ibrox could be a consideration but I think you have hit the snag on that one too.

    The ill will attached to being a person who bought over and used Ibrox for an alternative purpose would not be be worth the hassle & as you said it is not a very salubrious area to make the aggro worth it.

    So it looks like RFC in deep doo doo and being hit with the tax bill if/when it arrives.

    Restart and rent Ibrox from Whyte/Ellis holdings.

    The Rangers Fans get screwed.

  16. Boab says:

    Hasn’t Murray Sport Limited been dissolved.

  17. Anne,
    Sorry I missed this post. Short answer: no. This offer will not apply to Rangers.

  18. Paulsatim says:

    Do you think the Mayans maybe misread the signs and its the twisted world of rangers that will end in 2012 ?

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