Often Partisan

Preferred Bidders

Since news broke of Birmingham International Holdings receiving an “indicative, non-binding offer” for 24% of Birmingham City PLC there has been a lot of talk about how long the whole sale process will take. We’ve seen Jeremy Wray of Soccer Management Worldwide talk about how is group have a three week exclusivity period and the hot question is “what’s next?”

Like most football fans, I don’t have qualifications in running a multi-million pound firm and as such I’m working on a layman understanding. That being said, with there being information in the public domain it’s possible to find out what they mean by using specific words and from there to try and build a picture of the ongoing situation.

To answer the question of “how long is this going to take” we need to understand what “this” is. As we’ve known for some time the sale of BCFC has been complicated due to BIH wanting to retain its listing on the stock exchange and the issues that surround that; ie the need for BIH to diversify it’s interests into another business to prevent it becoming a pure shell and the lack of available cashflow BIH has to do that deal.

Why Piecemeal?

The question has been asked as to why BIH doesn’t drop this deal to sell in tranches and instead do some sort of “back to back” deal whereby they use the money from selling the club and put it immediately into buying something else which it is negotiating at the same time. As I understand it, that is not possible for a number of reasons. Firstly – BIH are bound by the rules of the HKSE and I am sure that if it was possible they would have brought it up with the HKSE to see if they could do it – the fact that they are not trying to suggests it’s not possible or the HKSE have disallowed it if they wish to retain their listing.

I see a “back-to-back” deal as like being involved in a house-buying chain; whereby to buy a new house someone is trying to sell theirs too; and the person they are buying the house from is also trying to buy something new and so on and so forth. A chain can make it difficult to buy/sell a house because one transaction is dependent on other transactions going through – if one falls apart all the rest do in a chain reaction. If this can happen in a chain of house-buying, it becomes exponentially more complex in a business scenario as there are many, many more variables and thus the time to complete one transaction could be vastly different to the time to complete another – thus there is no way a chain could form unless one was extraordinarily fortuitous. With this in mind it seems obvious to me that the only way that BIH can sell is to do it piecemeal, using the money as it comes in to buy something else. With a stock market listing worth £30mil or more it also seems obvious to me that it is far too valuable to lose – and would explain why BIH are hanging on to it with all their might.

The exclusivity deal

I have posted before my doubts that SMW has a period of exclusivity based on what I have heard from HK. I wanted to expand on this further, and to do this I think it’s important to understand various legal terms.

In the original announcement, BIH said that they had received an “indicative, non-binding offer”. Divestopedia defines an “indicative offer” as:

An indicative offer, also known as a letter of intent (LOI) or non-binding offer, is the term sheet used in a sales process which establishes a contractual negotiating framework between the potential buyer and the seller as they work towards a definitive purchase and sales agreement. Through this non-binding document, the potential buyer expresses an interest in acquiring the target and commits to good faith negotiations while ensuring the confidentiality of the process.

The essential components of an indicative offer include:

  1. The purpose and structure of the transaction;
  2. The determination of a price range (or at least the method for determining the purchase price);
  3. An explanation of the payment terms and any non-cash consideration that is being proposed;
  4. The anticipated sources of financing and the timing and steps required to secure such funds;
  5. A timetable of negotiations stating the length of this process, the period of due diligence, and the expected closing date; and
  6. Additional clauses that may need to be included such as a non-compete agreement, an exclusivity period, or the expectation of further involvement by the owner after selling

In essence – it’s an offer which says “we’re prepared to pay roughly this much, in roughly this time period, using roughly these finances”.

BIH confirmed in their announcement that

no formal agreement in relation to the Indicative Non-binding offer has been entered into…

in other words they had received the offer but had gone no further with it.

Jeremy Wray told the Birmingham Mail on May 29 that

On Friday 23rd May we were informed by Birmingham International Holdings that Soccer Management Worldwide Limited had been selected as the preferred bidder for Birmingham City FC, he said.

We have been granted a three week exclusivity period to complete final due diligence in order to more fully assess the opportunity. [My emphasis]

Let’s look into that in more detail. A “preferred bidder” is defined as:

…the bidder who is selected by the vendor, usually to some predetermined criteria, as being the party to whom it intends to sell the business, or award a contract, subject to the completion of negotiations and legal arrangements.

“Exclusivity period” is defined as

…a length of time (usually 30 to 60 days) during which a seller is prohibited from carrying out or furthering activities that relate to the sale of a firm with parties other than the prospective buyer with whom they have signed a letter of intent. The scope and duration of the exclusivity period varies (as per the decisions of the parties involved), but the specifications and regulations are written in each specific letter of intent.

In other words, Jeremy Wray told the Birmingham Mail that BIH had agreed broadly to sell the club to SMW, and had given them time to conduct final examinations and iron out the fine print before sealing the deal – which contradicts the statement given by BIH above.

I asked the HKSE if BIH would need to announce an exclusivity period and/or preferred bidder to the stock exchange and they referred me to Chapters 13 and 14 of the Listing Rules, particularly: 13.05-13.10B, 13.23, 14.08 and 14.33 and also The Guidelines on Disclosure of Inside Information mentioned in Chapter 13. From these, we can see rule 13.05 says

2. The Inside Information Provisions impose statutory obligations on listed issuers and their directors to disclose inside information as soon as reasonably practicable after the information has come to the listed issuers’ knowledge, and gives the Commission the responsibility for enforcing those obligations. The Commission has issued Guidelines on Disclosure of Inside Information. The Exchange will not give guidance on the interpretation or operation of the SFO or the Guidelines.

We can also see that inside information is defined as

17. Inside information must be specific information. Specific information is information which has the following characteristics

(a) The information is capable of being identified, defined and unequivocally expressed.

Information concerning a company‟s affairs is sufficiently specific if it carries with it such particulars as to a transaction, event or matter, or proposed transaction,event or matter, so as to allow that transaction, event or matter to be identified and its nature to be coherently described and understood.

My interpretation of those rules is that if there is a period of exclusivity with a preferred bidder, then BIH have to announce that fact to the stock exchange – and the fact that they haven’t indicates that there isn’t a period of exclusivity and that SMW are not preferred bidders.

The fact SMW are looking at the books shows that BIH are taking the bid seriously – which is confirmed by the fact that it was announced to the stock market complete with trading halt – but it doesn’t necessarily make them “preferred bidders” – at least two previous groups have undertaken that kind of due diligence prior to SMW without receiving that status.

In short, what we have is conflicting information and I think we have to err on the side of caution and believe only what is officially announced. As such, I don’t think the sale is as close as some believe and I think that we will be waiting longer than June 13 (which would be the end of Jeremy Wray’s 3 weeks) before we necessarily hear anything further. Of course – this could all change in that BIH could well be negotiating a firm deal and could accept that but until something is announced we just don’t know. So in answer to the question of how long will it take – I think we’re back to crystal balls, divining rods and guesswork for now.

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  • Luke Bowen

    Thanks for putting in the work Dan. Have you tried to contact Jeremy Wray at all, to get his understanding of where they stand?

    • http://batman-news.com Tony

      terrific summary of the facts as you see it, lot of work went into that .

  • Art

    Great but very depressing article Dan but not unexpected.

    In the meantime the fans (the life line of the club)are getting more and more frustrated with the complexity and lack of meaningful information.

  • Richard Granfield

    The question is why would Jeremy Wray say that he was informed by BIHL that SMA had been selected as the preferred bidder for BCFC and given a 3 week exclusivity period to complete final due diligence if it wasn’t true?
    What motive would he have for saying that?

    • OftenPartisan

      Paladini said he could do a deal in ten days. That wasn’t true either. Could be for a whole host of reasons.

      • Richard Granfield

        Different circumstances. Indicating a deal COULD be done in 10 days is light years away from BIHL tacitly endorsing SMA’s due dilgence.

  • ian

    I have followed your blog for many months, you have kept us all in the loop,
    and i would imagine all blues fans are grateful
    don’t sell yourself short, you many not own a multi million dollar operation,
    but i would point out that BIHL was headed by a convicted criminal, who then passed on the day to day running of the business to his legal advisor, who has been his legal advisor for a long long time,
    the mail revealed that Mr Yeung has had previous dealings with the long arm of the law,
    so it makes me wonder how much knowledge Mr Pannu had of Mr Yeungs character during the long, long business relationship.
    not exactly blue chip operating standards.
    all i know for sure, is blues will always be blues, these experts in running multi million pound operations might leave us in the old 3rd division just like the kumars did.
    but blues will always be blues.
    keep right on to the end of the road.
    all these cowboys have done is add a few bends and curves,
    but we will eventually get to a happy abode.
    I don’t see the same for BIHL

  • Raymondo

    It’s beginning to look as if Lee Clark has to start the season with what he’s got, which is why I previously asked how many players we still have with championship experience to start the season. Looks like it’s all downhill till further notice. But I’m an optimist and still hope for something good to come out of it eventually. I just hope we don’t drop too many points at the start of the season.

  • Chris W

    Once again you excel in keeping us informed into the intriguing and complex dealings regarding BIHL and BCFC.
    Don’t put yourself down, I would rather have you running BCFC than PP and his cronies in Hong Kong.
    As you point out the two parties are contradicting each other which in itself is worrying, the question is why?
    Only an announcement on the HKSE will answer any questions and as usual BIHL are either not complying with HKSE rules or Jeremy Wray is on his own mission and his own hidden agenda.
    It all adds to the worries we have for the new season, hopefully something positive will come to the fore that will give us all a lift.
    KRO+DNM

  • OftenPartisan

    HKSE have probably told them thats the most they can sell.

    • Eddie

      OP,
      This is the point that is really worthy of examination – the exclusivity issue is really by default as no other parties are interested in 24%, why would they be.
      In Wry’s statement he talks about being the preferred bidder for “BCFC PLC”. Well 24% does not give him that, BIHL will still have majority control.

      If there was any kind of planned watertight agreement for him to acquire the remainder of the shares at some defined point in the future then BIHL would have had to have included this in their statement but they did not, they only talked about 24% minority interest. Not stating other material information would have them back in big trouble with the very people they are trying to keep happy.

      Informal statements of intent about what might happen to the remainder of the shares in the future by BIHL would not satisfy any serious player who wants to protect their money/investment. For this reason I doubt the credibility of the Wry bid – perhaps he thought agreeing to 24% initially would get them talking and he could find a way to then make it work but my guess is this bid will fail. If it doesn’t then I would question the sense/motives of Wry’s backers – who would trust BIHL?

      Only when someone can buy all of, or a majority interest in, BCFC will see real progress, anything else is just continuing the messy BIHL saga.

      • OftenPartisan

        Eddie.

        There has been at least one other offer on the table that I know for a fact was for 24% down and the rest later so your point doesn’t hold up.

        • Eddie

          Or maybe it was the other bid needed “the rest later” to be properly defined and agreed to in a way which was incompatible with what BIHL need to keep the HKSE happy?

          • OftenPartisan

            Nope

            There is/was more than one bid Eddie, that’s a fact.

          • Eddie

            Yep, I’m not implying there wasn’t, just suggesting that the other offers would likely have been on the basis of contractual certainty for the sale of remaining shares and BIHL cannot/do not want to provide this.

  • Oldbluenose

    Perhaps, best summarised as, — How long is a piece of string, ?.
    With BIH, as the selling party, we should not expect clarity at any time,

  • Oldbluenose

    Sorry about the previous, A glitch occurred, !!.
    You have done well Dan, Summarising a complicated situation which is further complicated by Jeremy Wray stating something which does not seem to be very accurate, ?.
    We can only ” sit-back ” and hopefully await some outcome from this morass that will eventually rid us of all these shenanigans once and for all, /.

  • Mineheadblue

    Oh Dear, that doesn’t sound too promising! (I’m going for understatement today)

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  • fingles

    Great summary Dan. Funny I was only thinking earlier of raising the very issue you have blogged here. keep up the good work.

  • williammorgan

    All this talk is poo poo.any club is only as valuable as its team ,..look how many millions united lost under David Moyes when the team played badly ,.BIH have got no chance at all of winning anything now with what’s gone off ,…do they really think that by having different relations in that that is going to attract top quality players here at brum..time for a reality check the whole world knows that the fans ,players managers and club here have been punished for a crime they did not commit ,the board should have sold the club right away then,while it was of va!UE just after a cup win and with Europe to look forward to ….the club needs to change hands at the top to attract the best players and fans back…at the moment all BIH have is a melting ice cream which is melting faster than it can be eaten

  • Eric

    I do not understand why we don’t let Wray and BIH get on with it rather than second guessing everything. BIH love to work in confidence while Wray, being British, feels obliged to let the Mail know as he was seen at St Andrews. I like Wray and I want to let this play out…without distracting them…

  • mark

    take my hat off to you Daniel very very in depth blog…..so we back to the crystal balls lol

  • mark

    like i said before imo BIH are going to play hardball damn right too it their money

    • Art

      It’s not exclusively their money-fans/TV funding and commercial revenue have made a significant contribution to the value of the club which I image is falling like a stone at the moment.

      • mark

        Nearly got cy money…..how absent minded

        • Art

          Oh yes-illegal money if I recall.

  • williammorgan

    If BIH are really serious about selling brum why haven’t they arranged a loan with the prospective buyers to buy players ,with the loan to be the last or part of last payment and also the loan being an assurance of being In control of the club ..this loan being on top of the 24% down payment kro

  • beegeeblueboy

    A great piece of work Dan. Thank you.

  • Agent McLeish

    How can a stock market listing be worth £30m? If I have a HKSE listed company that is making a loss then how can this listing be worth £30m? Seem like pie in the sky to me. Also why not just acquire a low cost business or one that resides with one of the BIHL directors and include that into the BIHL portfolio? Then, the listing is maintained and BCFC can be sold in its entirety. I smell a rat with this selling in tranches nonsense.

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