BCFC: The Two Year Sale Explained

With both the previous Maxco bid and the current Often Partisan Limited offer for the club, there is a long drawn-out multi-stage process to complete the deal. Part of the issue is a two-year period put in place for Birmingham Sports Holdings to find another company to replace the club in the group, before finally relinquishing control.

St Andrew's taken 26 December 2018

It’s a potential process which has attracted a lot of criticism (including from myself), due to the length of time it takes and the issues it creates.

To recap, as it stands the agreement that OPL are negotiating is to buy the club in three tranches or sections.

After Part 1 of the OPL deal

The first tranche that OPL would buy would be the 21.64% of the club owned by Oriental Rainbow Investments, which would be done on the completion of negotiations. At this time, OPL would also buy the stadium and receive management control.

After Part 2 of the deal

The second tranche would be transferred in about 6 months and would be 25% of the totala 75% stake in the club owned by BSH.

Deal done

The third tranche would be transferred after about 2 years, when the final payment is made and would be the remaining 50% owned by BSH.

I don’t think I’m wrong in saying that this process is one which few people understand the need for; particularly considering the length of time it will take.

While I remain sceptical that the club can be sold in such a manner, I have tried my hardest to get to the bottom the reason why BSH have demanded that would-be bidders accede to this method of sale, and why it would take so long.

The Replacement Company

As has been stated many times before, the reason why Birmingham Sports Holdings will not sell Blues in one go is due to their stock exchange listing in Hong Kong.

Although intangible, the value of the stock listing is greater than that of the club and in real terms the listing is far more precious to BSH than the club is.

This is a really important thing for fans to understand because it will give insight to the logic BSH employ. For them the listing takes precedence, and the company will act to protect that rather than the club.

If BSH are to sell Blues, then to keep the listing BSH need to find a company to bring into the group to replace Blues.

More importantly, BSH need to bring this company in first before selling the club.

The obvious argument would be that BSH could buy any old business and use that to replace Blues.

Unfortunately, it’s not that simple.

Firstly, as evidenced by the other companies BSH have bought previously, such as the investment in One Park or Japanese medical company Medi Hub KK, the size of the company is important.

BCFC currently makes up around 90% of BSH’s revenues. In other words, for every £1 of turnover BSH makes as a group of companies, 90p came into Blues.

Therefore, any new company bought into replace the club needs to make a similar amount of revenue. This is about £20-£25M pa.

Secondly, due to increasingly strict HKSE rules on acquisitions, any new company would realistically need to be based in what is seen as a “respectable” country.

What this means is that while a new UK company would be great as a replacement, a new Cambodian one would probably not be allowed.

Thirdly, as we know that BSH want to keep the listing, it would seem logical that they would be probably looking for a company that would complement other subsidiaries within the group.

This all ties in nicely with a rumour that I had heard, that BSH are looking for a UK medical company as the replacement for BCFC.

If we work on the assumption that is correct, then it’s obvious that buying this replacement company is going to take some time.

For a start, buying a UK company with revenues in the range of £20m is probably not going to be cheap. To buy one, BSH are going to need a pile of cash ready to spend.

Not only that, but I suspect that the “know your customer” (KYC) regulations would be much stricter in a purchase of a UK company than say a Cambodian one.

This means BSH would have to be very clear as to where the money has come from to complete the purchase of this replacement company.

There are also hurdles to be negotiated in Hong Kong.

For a purchase of that magnitude, BSH would have to get shareholder approval to ratify the deal.

While I don’t think getting approval itself would be an issue, it would require various bits of paperwork to be sent to shareholders and an extraordinary general meeting.

All of which would take time.

That paperwork and EGM alone would probably take as long as three months to complete at a minimum, although complications could make that longer.

My guesstimation to complete this whole process from start to finish would be about 12 months.

However, once it was done BSH would finally be able to get on with the more important part for us – moving the remainder of the club out of BSH control.

The Approval

Once everything has been done to replace Blues with another company, the second part of this process can begin.

If we assume that there has been no problems with the management deal, at this point BCFC will have been under the control of the new people for about 12-18 months.

At this point, I’d hope that all of the HK stuff would be seen by us fans as an abstract red tape issue which will eventually sort itself out.

From BSH’s point of view, although there will be time-consuming regulatory obstacles to overcome, this final part of the process should be fairly painless too.

When a HK listed company has to sell a subsidiary, it has to obey certain rules.

If it’s only a dinky subsidiary, then an announcement will normally cover it.

If it’s a big subsidiary, then there has to be paperwork filed and a shareholder meeting to get approval.

If the subsidiary is almost as big in revenue terms as the listed company itself, then the stock exchange will get involved to ensure that the listed company is a proper entity at the end of the process. This is the situation BSH are in before any of this process begins.

However, with this new hypothetical medical company as part of BSH, the club becomes less important to BSH and the stock exchange are happier that the listed company will continue as a proper company after selling the club.

It would take time, but within 6-12 months the paperwork could be all filed, the meeting held and the final shares transferred.

Some may complain about the BSH listing and how it’s a millstone around the club’s neck and they’d be right to do so.

However, as much as it’s a millstone there are also benefits.

The chief benefit for Blues is that because it is owned by a HK listed company, this whole process should be fairly transparent.

If buyers and BSH can get to a point where they agree a deal and the first 21.64% is sold and a management deal is signed, then the rest should in an ideal world be paperwork and announcements.

The problem is going to be getting to that point.

Investors (and probably the EFL) want to be sure that BSH cannot renege on the deal once it’s signed or interfere with management control.

BSH have to be able to concede management control without falling foul of any HKSE rules regarding the financial viability of the listed company.