Did Walter miss a trick?

The number of potential investors who looked at acquiring Rangers is not public information. The early advantage held by Paul Murray and the Blue Knights was frittered away. Others came and left for various reasons, most notably Bill Ng citing frustration with the process.

Selling a business after a company has become insolvent represents the trickiest balancing act of all advisory tasks, the more so where every action in the drama is subject to public scrutiny and the most significant stakeholder – the fans - has attachment rather than ownership.  Throw in a hostile and sensationalist press and it becomes almost impossible.

At the last minute, or actually after the last minute, Walter Smith, fronting a consortium including Jim McColl, emerged as a seriously-intended bidder.  Did Walter miss a trick in the timing of the expression of interest?

Duff and Phelps did not co-ordinate a brilliant selling campaign. Others may have acted differently. In particular:

  1. A firm timetable, taking account of insolvency reporting obligations, CVA timetable and requirements of authorities for completion of formalities would have been set and adhered to under simple threat of heading for liquidation if not met by anyone.
  2. The Whyte share issue would have been tackled on day 1.
  3. The Ticketus agreement would have been torn up on day 1.
  4. A pro-forma offer letter stating CVA or liquidation preference, supported by pro-forma proof of funds would have been circulated for completion.
  5. Football authorities and tax authorities would have been pro-actively engaged so all potential purchasers were working to the same basis.

Maybe they did all that. Who knows? It doesn’t look like they did.

Green was able to come late to the party as frontman for Zeus after all other interests had departed, underbid or failed to get their act together. Green cleverly built in the condition that if the CVA failed the sale of assets from Administration to his newco vehicle was binding. Equally, HMRC were clever enough to insert a “liquidator” clause. This was not known publicly until a very late stage due to late publication of minutes of the “creditors meeting by correspondence”. No Creditors Committee was elected at that meeting, so far as I can see.

Affairs rumbled on to the CVA meetings. Fans grumbled; press members sensationalised; some journalists remained calm and analytical. HMRC continues to delay publication of the Tier 1 Tribunal result, which did nothing to stop the torrent of as-yet unfounded “cheating” allegations. Fever surrounded the possibility of some late bid.  The reality was that the CVA proposal was on the table at a miserably low return to creditors. Now we discover that for three weeks before the CVA meetings Walter’s people had been in discussion with Duff & Phelps.  Yet they made no offer until after the meetings. Did Walter miss a trick? Yes – several. Here is my opinion of why.

By Green’s admission the CVA proposal was in the hands of the creditors – their vote prevailed

On all analyses and advice (my own documented opinion included) the deal in the event of the failure of the CVA proposal was binding.  The only glimmer of hope for an acquirer related to the CVA proposal itself. The first trick missed was the opportunity to unseat Green from the CVA process  in this manner:

  • Resolve to increase the CVA pot by a material amount.
  • Obtain the support of a creditor to propose a modification to the proposal as tabled.
  • Indicate to the Administrators concern over Green’s ability to fund the acquisition and fund the Club going forward – the Administrators, as Nominee of the CVA, must be reasonably sure of the prospects of success of the CVA or else they should not be proposing it.
  • Indicate to the Administrators the willingness to fund the increased CVA pot (a permitted modification) but also capability to fund the Club going forward for the foreseeable future regardless of SFA and/or SPL sanctions and regardless of diminished season ticket income.
  • Make an offer to Green to accept assignment of his rights under the binding agreement and copy that offer to the Administrators / Nominee.
  • Separatelyand informally confirm that the fan base’sattitude to Walter’speople would greatly enhance the potential success of the CVA in a way which Green’soffer cannot match.

Once the CVA proposal had been rejected Duff & Phelps moved to complete the asset sale to newco for two reasons:

  • To get themselves off the hook in circumstances where fees racked up may well be subject to scrutiny and reduction by the liquidator.
  • To let Green and Walter’s people fight out any further transaction free from the shadow of insolvency proceedings.

And here’s where the second trick was missed. Once the deal was done, Green’s advisers would be entitled to success fees, and not merely a much lower level of abort fee. Contractually therefore Green’s cost of acquisition increased  through the increase of fees to perhaps double or more. Additionally, after the deal was completed, Green could rely upon possession being 9/10ths of the law – he is indisputably in possession and not in a credibility contest.

There is now a third trick which I believe Walter and Mr McColl are too astute and experienced to miss but it is the very trick missed by the Blue Knights under Brian Kennedy’s deal leadership. It is this: The value of Rangers assets and the Club is higher than the price paid by Green. Green and Zeus know that. If fans pressure takes Green into financial difficulty, these assets will be sold, make no mistake.  Green  may protest otherwise but he may not be too bothered if that is the case.

What then will protect against a third missed trick? An offer which fairly values the assets, which is not based on the blackmailing assertion of fans support or otherwise, which recognises Zeus’s outlay including the missing of the second trick and a return to  Zeus-led shareholders who are mercenary.

That’s it.

Professor David Kinnon is a chartered accountant and licensed insolvency practitioner who is currently based in the British Virgin Islands. Views expressed are entirely personal.

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