Share options at Ibrox

A shadow of the gates at Ibrox Stadium Image copyright SNS

Followers of the long saga of financial mayhem at Rangers Football Club have probably worked their way through a significant portion of a master's degree in business.

They can quote the intricacies of administration and liquidation under insolvency law. The CVA, or company voluntary arrangement, was a favourite exam topic a couple of years ago. Then there's the Alice-in-Offshore-Wonderland tax arrangements for an Employee Benefit Trust.

Most Glasgow cabbies can fill you in on the detail, and those who are ill-disposed to Rangers are likely to be at least as knowledgeable as the true blue believers.

They may soon learn a lot more about the law on fraud, following some significant arrests in the latter part of 2014.

But to start this year, the syllabus moves on to the law on takeovers. So what bits of company law matter?

Here's a rough guide, which should not to be taken as legal or investment advice, but guidance from someone who's possibly as confused as you are.

Remember: asset valuations can go down as well as up. Of course, Ibrox aficionados are already well aware of that.

The outsider

Company law seeks to expose the dark arts of equity investment to protect all shareholders.

That includes protection from other major shareholders whose interests may not align with lesser ones.

And it also seeks to ensure there are rules for any outsider, including a commercial rival, who wishes to buy the company, or simply to destabilise it.

Of course, it doesn't stop takeovers. It aims to create fair rules for them.

Robert Sarver falls into the outsider category. He's so outside that he owns the Phoenix Suns basketball team. On 2 January, he informed the powers-that-be at Ibrox that he is considering a takeover.

Image copyright Christian Petersen
Image caption Robert Sarver announced on 2 January he was considering a takeover

We're told he's got £18m to buy a controlling stake, and a further £15m to back it up, some of which might even become investment in the club's assets and players.

An announcement to the stock market from Rangers International Football Club plc (the holding company for club assets) formally alerted shareholders to what they probably already knew from the media.

The share price rose 16% to 26p (it was below 18p last week, though 93p two years ago), meaning a £21m valuation at end of trading on Monday.

Going hostile

The law gives the potential bidder 28 days to put up or go away, for a while at least. That is, they can lodge a formal bid process, or they're barred from doing so for 12 months. That's to stop pesky troublemakers from de-stabilising a company, or putting it under an extended siege.

If there's to be a bid, Robert Sarver's lawyers have until 17:00 on 2 February to issue a bid document setting out the offer price and the case for a takeover.

He may, by then, have persuaded directors of RIFC plc that his offer is good value for shareholders (offering a significant premium over the recent share price) in which case they can recommend it to all shareholders.

They have 15 days from the bid offer in which to reply.

Directors are supposed to represent the interests of shareholders in running a company. So if there's a recommended bid, the takeover usually becomes a polite formality.

But if a bid is not recommended, and directors think the offer undervalues the company, things can turn hostile. There are deadlines for subsequent offers, and thresholds to be reached if the process is to continue to the final closing date.

Minority report

Through this process, company law requires that major shareholders have to declare when their stake passes certain ownership thresholds. That way, other shareholders can see when a potential bidder is raising a stake beyond 3% and then 10% (or reducing a stake down past these thresholds).

Once a company is named as target of a potential takeover, the bidder is limited to 30% of the shares, unless the board of directors recommends the bid to shareholders.

There are also rules requiring bidders to pay the same to all shareholders as the maximum they have paid per share to others in preceding months. And if a majority stake is secured, there are rules safeguarding the position of those then in a minority.

There are further deadlines. From the day a formal bid is published, the process takes between 21 and 60 days, unless another bidder emerges, in which case the whole process resets to the starting point.

Image copyright Danny Lawson/PA

That's just one of the uncertainties in the case of Rangers. Where big minority stakes have been taken in recent days, it's far from clear that directors' views are aligned with major shareholders.

The chief executive, for one, appeared to be put in place by Mike Ashley, who owns less than 9%, and was recently refused permission by the Scottish football authorities when he applied to see it raised it to nearly 30%. He has provided debt funding to help with the club's dire cash flow. The newly-appointed finance director, Barry Leach, has come from the same Sports Direct stable.

We have yet to see if the Sports Direct tycoon is going to oppose the recent moves by wealthy fans, car dealer Douglas Park, George Taylor and George Letham, forming the Three Bears consortium, who have 19% between them.

Or it may be that he sees more value in bringing someone else's money into Ibrox, while getting the most out of his company's merchandising deal.

Since the Three Bears went down to the woods to buy their shares, the next big surprise was former director Dave King buying 15%.

That makes him the biggest single shareholder, as well as being no stranger to controversy in his adopted South African homeland.

But it is director and bus boss Sandy Easdale who has the most individual clout, with 5% for himself, proxy votes for 21%, and collateral for the £500,000 emergency funding he provided to see off trouble from HMRC.

Goldilocks and the Three Bears

If these four recent investors were working together, they would constitute a "concert party", with combined ownership above the 30% threshold (Goldilocks and the Three Bears? Some concert.)

Dave King has been firmly denying any such concerted effort, let alone any party. But we're told another shareholder has raised this with the Takeover Panel, which enforces the code of conduct on such acquisitions.

If the Panel believes there is collaboration between these wealthy fans, it will require them to conform to the same takeover rules as an individual bidder such as Robert Sarver. The watchdog can also require them to disclose information even if it thinks - without evidence - they might be collaborating.

If there were to emerge an alliance between the new stakeholders on one hand and the existing board's power base of Sandy Easdale with Mike Ashley, they would have very similar percentages under their control, making the remaining third of shares vital to reaching a majority in a shareholder meeting.

In that case, the beleaguered fans who put a much smaller investment into their club might get a say in all this.

But there's lots more to work through first. Is the new American bidder serious? Does he know what he's letting himself in for, with a big brand but also a bucketload of hassle?

Which investors can work together? And could the current board survive a mauling by the Three Bears? This could still get grizzly.

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