Ibrox: Referee threat to King's crown

Douglas Fraser
Business/economy editor, Scotland

image source, SNS Group
image captionDave King's hold on Ibrox is in doubt

Back in the top flight of Scottish football, at least some pride restored, the fans at Ibrox might still hope that normal service has now resumed.

They're to be sorely disappointed again, and not only because an imminent criminal court case can be expected to bring back some painful memories.

The current directors' box regime, under Dave King, is still in emergency measures. Rangers International Football Club (RIFC) is cut off from normal financing and banking, and having to fund losses by reliance on wealthy shareholders.

But now, King's hold on Ibrox is in doubt. The method by which he got control of it has led to the close attention of the Takeover Panel - a usually obscure arm of company law, with the job of refereeing fairness for all shareholders amid bruising corporate jousts.

It has never used its enforcement powers before, which is just one of the aspects of the RIFC and the Dave King case, which is unprecedented, and leaves a lot of uncertainty hanging over the club.

Concert party

To recap, there was a well publicised consortium of wealthy Rangers fans who worked with South Africa-based Dave King to wrest the club from its former directors.

They achieved this by buying more than a third of the shares in the club. And that's the way it has remained.

image captionShares in Rangers International Football Club have been trading at 27.5 pence

But if you're involved in a takeover of a company - any company - when you get past 30% of share ownership, you are required, by law to make an offer to buy all the other shares.

The price is set by the regulator at the highest level reached in the last 12 months during which the bidder was amassing shares.

If shareholders combine forces to take over a company, as this team did, in a so-called "concert party", that has to be declared as a single bid. In this case, no such declaration was officially made. The Takeover Panel has since said that it should have been.

There's a good reason for this. With 30% you can have effective control of a company. Now, think of company A which buys enough shares in its main commercial rival company B, to take control of its boardroom.

'Delinquent director'

By taking decisions which undermine the health of that company, A's owner can shrink B's market share and profitability, and ultimately run it out of business altogether. That's clearly not in the interests of the other shareholders of company B. So fairness requires that they are offered a fair price for every shareholder to sell to the takeover bidder.

That rivalry scenario may not apply at Ibrox, but the law still does. And since the Takeover Panel last month told Dave King he had a month to make an offer to buy all the club's shares, he seems to have simply ignored it.

That's why the Panel is taking the unprecedented action of seeking to enforce its ruling, through the Court of Session.

The court can take whatever action it believes is necessary to ensure the law is observed. Mr King could, for instance, be barred from acting as a director, or forced to sell his stake in the club. And if Mr King continues to ignore legal authority, he can be ruled in contempt of court.

The Takeover Panel's code also includes measures for "cold shouldering" - for instance, requiring professional bodies to challenge the director's continued status within them. That may not much bother a businessman in South Africa, but if it pushes the financial regulator to ensure financial companies don't have anything to do with a delinquent director, then that could hurt a bit more.

Now, here are two puzzling complications. The Takeover Panel ruling says that Mr King must offer to buy all the other shares at 20 pence. But if you look at the platform on which Rangers International Football Club (RIFC) shares are traded, you'll find the most recent trades have been at 27.5 pence.

image captionThe Takeover Panel is seeking to enforce its ruling through the Court of Session in Edinburgh

It might, at first, seem daft to sell your shares for 20 pence when the going rate appears to be 27.5 pence. But that going rate may not be as it seems.

The trading platform won't tell you is how recent these trades were. That market is not like the London stock exchange. You put up a share stake for sale, and wait for someone else to show interest. Trading is sticky. It may be possible, that way, to inflate the true value of shares.

And if you have shares in any company, they are only worth something if you can find someone to buy them. It matters a lot that such markets have liquidity - meaning enough willing buyers.

Zombie shareholders

The other puzzlement is the 10.4% of the company that's owned by anonymous funds that have refused to respond to messages from Ibrox.

Blue Pitch Holdings has four million shares, ATP Investments has 2.6m, Norne Anstalt has 1.2m and Putney Holdings has 700,000.

Directors have written to them "requiring information about the nature of those interests". And having received no answer, they have barred these shareholders from exercising voting rights, receiving any dividends, or having a transfer of shares registered. That should make them impossible to sell.

These appear to be zombie shareholders, which many may wish to link to those with a previous interest in running the club. Whoever is behind them, it's a weird presence on the share register of a company which is now in a lot of hot water.

Of course, Dave King could solve his Takeover Panel problems by now making an offer for those shares, including the zombie element. That could cost him £11m, plus hefty advice, offer and transaction costs.

That would set back to square one the romantic notion of ownership by the wider fan base, eventually handing control to the fans.

It would also require Mr King to make good on his commitment to the club. He is supposed to be very rich, from his South African businesses. His clash with the country's tax authorities would suggest he must have done a lot of successful business to have failed to pay so much tax on it.

We don't know how he got into that very expensive mess in his tax affairs. But the evidence suggests he may be the kind of person who receives official-looking letters and stuffs them in a drawer in the hope that the problem goes away. As a general rule, it doesn't.

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