Rangers in Crisis: The Hunt for Whyte October and a Pretty “Poison Pill” Woman

18 May

WEB3dLAW is back with a significantly shorter blog post today.  I have been waxing lyrical lately about popular films. One of my favourite of all time is The Hunt for Red October – the film adaptation of the Tom Clancy novel about Cold War era submarine warfare between the Yanks and the Russians. In one of the latter scenes, former US senator Fred Thompson asks the protagonist Dr Ryan, played by Alex Baldwin, “What’s his plan?” To which Dr Ryan retorts, “His plan?”  The Captain points out that “a Russian submarine captain doesn’t take a dump without a plan”.

One of my partner’s favourite films is the Richard Gere/Julia Roberts RomCom, Pretty Woman.  Do you remember this scene from Pretty Woman when Gere takes Roberts to a dinner meeting with the father and son owners of one of Gere’s takeover targets?

http://www.youtube.com/watch?v=mkKviMfi24s

Gere wanted to buy a large family owned ship building business and in what is commonly referred to as a “hostile takeover”, the duo had come along to the meeting to persuade Gere’s character to end his bid for their family business.

I mention these because both films lead into my nice little transition into a discussion about the business concept called “poison pills”, something I mentioned yesterday.

Poison Pills” and “Shark Repellents” sound like they belong in a James Bond film, but they are actually generic terms for business strategies to repel or reduce the attractiveness of a business to hostile takeovers.  I often wonder, “What was Craig Whyte’s plan?” He doesn’t look like a man that takes a dump very often, or without a plan. I have been thinking about this for a long time. Something doesn’t sit right in this whole thing, so I will give this idea a whirl. It is an idea, but would love to hear your input on its feasibility or accuracy. If I have missed anything out, let me know.

A “poison pill” is a generic term used to describe shareholder rights plan, and is a type of defensive tactic used by a corporation’s board of directors against a takeover. Shareholder rights plans, or poison pills, are controversial because they hinder an active market for corporate control. They also devalue the company and benefit the directors.  A poison pill also has other meanings:

It is sometimes used more broadly to describe other types of takeover defences that involve the target taking some action. The broad category of takeover defences (more commonly known as “shark repellents”) includes the poison pill.

Other anti-takeover protections include:

  • The target business adds to its charter a provision which gives the current shareholders the right to sell their shares to the acquirer at an increased price (usually 100% above recent average share price), if the acquirer’s share of the company reaches a critical limit (usually one third).
  • The target takes on large debts in an effort to make the debt load too high to be attractive—the acquirer would eventually have to pay the debts.[1]

Let’s look at the facts.

  • CW bought Rangers from Sir David Murray’s company for £18,000,001.00. There was a £1 transaction between the two men.  Craig Whyte then paid off Lloyds TSB debt at HBOS by wiring £18,000,000 from Collyer Bristow to an account at Lloyds.
  • CW then had Lloyds assign all relevant securities over to him or his company Wavetower, now “Rangers Group FC”.  Although it is widely accepted that Craig Whyte used Ticketus money to fund the purchase, what is important to remember is that Craig Whyte and Sir David Murray valued the company at £18Million + £1 or £18,000,001.00.
  • Ticketus becomes an unsecured creditor after Rangers enters into administration and is owed £26.7 Million.
  • Rangers cannot raise money from season ticket holders for the next few seasons.
  • Charles Greene and his “20-man consortium” buy Rangers from CW for the nominal charge of £2.  There is no agreed £18M paid into a lawyers account to pay off a debt to HBOS this time. The £8.4M is set aside for the creditors’ pot IF a CVA can be agreed to.  If the CVA can’t be agreed to, is there any contractual obligation to put the £8.4M into the club’s coffers? NO.
  • A new only comes in and cancels the Ticketus deal altogether. They sue the old owner – Craig Whyte. The Ticketus deal is null and void, and CW only pledges his shares and debenture if a CVA goes through.
  • I may be wrong, but I have seen no-one from the MSM ask this question. If the CVA is not agreed, then what happens to the £8.4M held for the creditors? If the answer is nothing, and it doesn’t go into the CVA pot, then it means…

Charles Green bought the club, Ibrox, Murray Park, and the car parks for £2.00. If a CVA cannot be agreed to, and the club has been sold to a 20 man consortium in equal shares that RFC have been bought for 10p each share! Any new owner could come in and buy these shares in a newco company – a debt free football club playing in the SPL with a TV contract with Sky and ESPN. A rights issue WOULD make the original owners a tidy profit on the stock exchange. 

I want to be clear this is me hypothesising. However, it is very suspicious to me that a company that was sold a year ago for £18,000,001.00 has been sold again in less than a year for £2.00. It is worth knowing if the Ticketus deal was a double poison pill– not only did it fund the purchase of the club, but it effectively ensured that “the target company takes on large debts in an effort to make the debt load too high to be attractive. It would be so unattractive that no acquirer would want to pay the debts.”

Here is a classic anti-shark repellent move! This strategy also assumes that the club pays their debts in the long-run. However, under today’s company laws, in particular the Enterprise Act, struggling businesses can continue in new forms as government would rather see businesses keeping jobs going at the expense of toxic debt – which keeps far less in employment.

A plan to shed my business debts in a morally ambiguous, but legal way might look like this:

Run up massive debts and get served with massive bill from more creditors including, hopefully HMRC! Be unable to service those debts. Limit the ways the company can gain access to working capital. Then bankrupt your own business by putting it into administration. Make the company unattractive to legitimate parties of interest by taking on massive amounts of debt. Hire the same people who advised you on this strategy to run the company during the administration process. Offer to sell to a buyer (outside of the circle) to make the whole thing seem legitimate, but as soon as he sees the financial picture, he walks and walks away. Make it as unattractive as possible to any other potential buyers by having an element of your customer base threaten any potential buyers, but at the same time pay for the Old Guard (fine gentleman like Sandy Jardine, Andy Kerr and Mark Dingwall) to wax lyrical about how great Rangers is to anyone eager to lap it up. 

Forego your debts to the tax man other legitimate creditors and form a “newco”… Get a slap on your wrist from the regulatory organizations.  Cancel all of your debts. Buy your partners in consortium out. Return to the glory days of the past.

Smell a rat now?

Laters,

WED3DLAW

[1] Fundamentals of Corporate Finance (6th ed.), Editions McGraw-Hill Ryerson, §23: Mergers and Acquisitions

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24 Responses to “Rangers in Crisis: The Hunt for Whyte October and a Pretty “Poison Pill” Woman”

  1. Paul Black May 18, 2012 at 11:00 AM #

    Hmmm…..you could be onto something…but I think the protagonists here did not factor in the SFA(and surely now the SPL?) growing a pair….Just wish they would “man up” and apply for Div 3 and be done with it.

    • Carntyne May 19, 2012 at 12:11 PM #

      There is a fly in the ointment of this theory. Green has said that the purchase of Whyte’s shares depends on a successful CVA being agreed. If as expected this doesn’t happen then Whyte will retain his shares and still be de facto owner of the club.

      Whyte agreeing to sell his shares to Green for £2.00 makes no sense until you realise there’s a successfull CVA condition.

      Since a CVA is very highly improbable, Whyte is in no danger of losing his shareholding.

      That leaves the question; why would Whyte agree to this absurd deal with Green in the first place?

      There must be something in it for both Green and Whyte.

      But what?

      • web3dlaw May 19, 2012 at 1:30 PM #

        The shares still transfer. The club is liquidated. Assets get sold to fulfil CW’s floating charge. Rangers still exist in the SPL because of the agreement with Doncaster. They play at Hampden…? Rights issue makes everyone rich again…

  2. Stevie May 18, 2012 at 11:44 AM #

    Interesting theory. I’ve been sure for a long time that Whyte is still a player going forward, I just couldn’t work out how. This (or a variation) could be it.

  3. Bhoywonder May 18, 2012 at 2:55 PM #

    I have always said from the outset that this was an elaborate conspiricy. What you have just done here is to unravel that conspiracy in a believable way. and make fairly clear the motives and objectives of everyone involved.

    I assume Kerr, the Rangers supporters chairman, also needed to be in on the plan to organise the scare tactics and “rallying calls”. Very clever and very cunning. Absolutely no integrity for the sport to speak about in any of this. Ho hum.

  4. merklandroad May 18, 2012 at 6:52 PM #

    I understand that the agreement between Whyte and Green to sell the shares terminates if there is no CVA.

  5. duggie73 May 18, 2012 at 8:40 PM #

    It seems to be the case that Group will be the only creditor which receives any money, in any scenario.

    So is it then the case that the asset transfer can be conducted without a successful challenge for £2 as no other creditor is worse off because of it?
    (genuine question btw)

    It is the case that CW doesn’t net any serious £ from this, but if it is a given that Ticketus securities against Liberty Capital/Group are sound, such would be the case anyway.

    So we’re left thinking it highly likely that CW has received a bung offstage.. either upfront from SDM or at the end of the process from the eventual owner.
    Or both.

    It’s nasty enough to be true.

    • web3dlaw May 18, 2012 at 10:16 PM #

      As secured creditor, he still would be entitled to be paid first if the company was to be liquidated…

      • duggie73 May 19, 2012 at 3:05 AM #

        Yup, and if you assume that the Green bid clears the Close and Sports Council securities but no bid has been sufficiently large to see any unsecured creditor receive a bean, it really is entirely up to Whyte who he wants to sell to.

        The administrators must act “in the interests of creditors” line looks a red herring.

        The striking thing is that for all the furore over the football authorities’ alleged complicity in this, in any other business the process would have been entirely unproblematic.

        Between the existing insolvency rules and creditors’ current order of preference, the law seems an incitement to what those without the benefit of legal training might label fraud.

        Boo.

    • web3dlaw May 19, 2012 at 7:10 AM #

      Or hypothetically speaking SDM could buy a debt free NewCo back from Green Knights or be in consortium already…

  6. oldgold May 18, 2012 at 10:11 PM #

    Is it possible that rangers would or will carry on in administration for an indeterminable time ?

    • web3dlaw May 18, 2012 at 10:15 PM #

      An Order is usually granted for 12 months, although the Administration process is normally concluded sooner. In exceptional circumstances, the Order may be extended to 15 months.

      • oldgold May 18, 2012 at 11:13 PM #

        So in essence this circus could legally carry on for another year within the protection of administration ?

    • garryjbmacinnes May 20, 2012 at 12:05 AM #

      Usually the period of a year however this can be extended by the courts should there be ‘light at the end of the tunnel’ so to speak.

      THe problem with Rangers is that the cash will run out long before this period.

  7. foolsgold May 18, 2012 at 11:38 PM #

    Craig Whyte also handed over his debenture as well as his shares, which I think means he doesn’t have the floating charge over the assets. As for the 8.5 million … I think that in the event of a newco, this would end up being paid for the asset transfer and that becomes the creditors pot when the oldco is liquidated. So under CVA, the pot includes Jelavic money and any money gained from a lawsuit. Under oldco, it is just the 8.5 .. have I got that right?

    • web3dlaw May 19, 2012 at 7:18 AM #

      Where has this been reported? No-one I have spoken to have seen anywhere that Green has stated that CW handed over his debenture. He cant without notifying Companies House and the LR, so until it shows up there, Ill be suspicious of anything otherwise. You may be right about the 8.5M, but until that transaction occurs there is no guarantee that this is what will happen. D&P will need to take their funds out of that as well. So the assets are going to go for cheap to the newco… This is why I think the creditors will vote down an asset sale to a newco…

      • duggie73 May 19, 2012 at 12:44 PM #

        In the intial press conference with Whitehouse and Green, Green made mention of the debenture having been transfered but was tripping over his words as he did so.
        The statement’s real, whether it’s true or not is another matter.
        I’ll try and dig out a link.

    • reilly1926 May 19, 2012 at 9:39 AM #

      The Whyte deal with Green is cancelled if RFC(IA) go into liquidation. This is when Whyte cashes in.

  8. web3dlaw May 19, 2012 at 7:09 AM #

    Yes. Or longer if a court agrees so…

  9. Lemmy May 19, 2012 at 10:41 AM #

    Is there a precedent for this in the world of football? As commenters mention above, there are other considerations. Competition in business is different to sporting competition. Was the plot hatched with arrogance: Scottish football can’t survive without us? What happens when the plan is uncovered by the internet bampots, then the fans of other teams and finally by the fans of Rangers (oops, forgot the mass media will be at the coo’s tail)? The perpetrators acting in self interest rather than the interests of the club. I guess time will tell.

    Is it typical for administrators to take so long? If the final act is already written why not cut to the chase? Particularly as time is running out to be admitted for season 2012/13.

    Great posts by the way. Relatively easy to understand for my non-legal brain.

  10. duggie73 May 19, 2012 at 12:52 PM #

    http://local.stv.tv/glasgow/99555-charles-green-tycoons-statement-on-his-takeover-of-rangers/
    Green states CW has pledged his shares and debenture on acceptance of a CVA.
    It’s around 4.30mins in.

    • web3dlaw May 19, 2012 at 1:24 PM #

      Yes. It is widely accepted that a CVA is unlikely, so he has done neither. If the CVA doesnt come through, as Secured Creditor he will get paid first.

  11. Alan June 2, 2012 at 7:29 PM #

    Why doesn’t HMRC oppose the administration of Duff and Phelps since it seems they will get nothing either way, and the assets will go to the newco? For the assets to be protected from the creditors and leave them with nothing surely isn’t in their interests? They would have been better off agreeing a delayed payments schene from the beginning.

    • Henry Clarson June 10, 2012 at 12:01 PM #

      That question troubles me as well, Alan.
      I find myself wondering if HMRC realised from early on that they were going to be stitched up something rotten as far as receiving any money is concerned. With that in mind, they decided to hang on in there and start looking for evidence to bring criminal prosecutions instead. That feeling on my part is strengthened by the fact that their nominated insolvency practitioners for the liquidation gig are likely to be BDO who are specialists in tracking down financial wheezes which reek of skulduggery.

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