BCFC: Overcoming Obstacles

Saturday felt like a familiar kick in the teeth as a Birmingham City fan. Against West Bromwich Albion it felt like hope and belief was returning to the team but two successive poor defeats to struggling opposition has once again brought the anguished and pessimistic to share their despair online.

Main Stand St Andrews

It’s a similar feeling off the pitch; despite hope that things are looking up with a new consortium negotiating for the purchase of the club, the negativity has returned due to the fact the same old obstacles are in the way of completion.

I get the cynicism, although the hyperbole that the club will “never” be sold just seems to be another reason why no one should take social media seriously.

Obviously, the club will be sold at some point before the inevitable heat death of the universe; however, it just might not be as simple or as quick as some want.

Rather than dwell on what the problems are, I’ve been thinking of what the solutions might be.

We know where the challenges lie for any consortium to buy the club, but I don’t think anyone has thought enough about how they might be overcome.

I’ve come up with of a couple of ideas that I think might help to push things along.

Obviously, I’m not a lawyer or an accountant and these ideas probably come with issues that I don’t know. However, I want people to think positively that there is a way out of this current mess, if potential new owners want it enough.

Buying the replacement company

As described in previous blogs, one of the issues Birmingham Sports Holdings has to overcome before they sell the club, is the need to replace Blues with another company to keep their listing.

I’ve outlined why this is difficult for BSH, with the principal difficulty I see being money.

To buy another company the size of BCFC is going to cost a fair old chunk of cash, especially if we take into accounts both HKSE requirements and what BSH’s ongoing aims might be.

That’s something that BSH might not readily be able to put their hands on.

While I’m sure I’m not the only person to think about this, I wonder if a way to do the deal would be for a consortium to have that replacement company ready to sell to BSH as part of a “swap deal” of sorts.

The way I’d see it working is rather than BSH taking a year to find and buy a replacement company, a consortium would have this replacement ready to sell to BSH.

This would then speed up being able to move BCFC out of BSH control, shortening the length of time to do the deal.

The obvious advantage to a plan like this would be twofold.

Not only do I think it would potentially speed up the deal, I also believe it could also lock BSH closer into the transaction.

My reasoning for this is fairly simple.

Imgaine you’re the consortium wanting to buy the club. If you know you’ve got what BSH want when they sell the club, then the dynamic of the whole transaction is going to shift in your favour, making for a more buyer-friendly deal.

The obvious drawback in all this is the time, effort and above all money it would cost to buy this replacement company in advance.

You’d need to be 100% sure you know what BSH want, and you’d need the ready cash yourself to be able to do the deal quickly.

This makes this idea a bit of a faff, all things considered.

However, it might be that there is an even simpler solution if the money and courage is there.

Buying the Listed Company

In past years the thought of buying BSH would have been utterly crazy.

This is because the cost to buy every single share in the company – what is known as the stock market capitalisation – was for long periods in the region of £250M.

However, a look at BSH right now shows that Birmingham Sports Holding is worth a lot less.

Stock market cap 170223

From the image above, you can see the bottom but one line says the stock market capitalisation of BSH was HK$833.28M –  a little above £88M.

In fact, in recent weeks it’s been even lower, touching as low as £80M at one point.

I’ll freely admit the thought of buying BSH for £80m instead of buying the club and the stadium for £35m seems a bit crazy.

Once you get past the extra cost involved, it’s maybe not so mad.

For example, I think that by buying the whole of the listed company in one go, some of the major obstacles involved with buying the club would disappear quickly.

Take the EFL investigation into Wang Yaohui, aka the elusive Mr King.

I imagine that if the whole of BSH is taken over by a new consortium in one go, then that investigation would be quietly wound down and Blues would get a token slap on the wrist.

This is because I’m fairly sure that a change in hands of the ownership of BSH would resolve a lot of problems for the EFL.

The lack of need for a management deal or a prolonged sale also removes the need for trust that a deal will be completed.

With the listing itself being worth £40M one would hope that some costs could be recouped fairly quickly too.

It’s not a move for the foolhardy though.

I would imagine that the due diligence involved in buying the whole of BSH would need to be very carefully conducted. One would want to be 100% sure of what they were getting, with no nasty surprises financial or otherwise.

Likewise, even if a consortium bought 100% of BSH, I’m not sure how the purchase of the 21.64% stake in the club owned by Oriental Rainbow Investments would be completed, along with the purchase of the stadium.

However, the fact that this is now somewhat in the realm of possibility should give us all hope.

While it’s important to reiterate that I’m not an accountant or a lawyer and that my knowledge of this kind of transaction is very limited, what I want people to take from this article is that there should be always be some hope that a deal can be done.

If a simple blogger sitting in his underpants tapping at a keyboard can throw out a couple of ideas to get around the hurdles of buying BCFC, imagine what some top lawyers and accountants could do.

Rather than sitting looking glum and thinking that “this will never happen”, we should understand that there is always a chance that it might.

I’m not saying a deal is done or that it’s all going to be sunshine and lollipops soon. I’d hope people have learned the lessons from last year as to why I could not and would not say that.

However, the situation is not completely hopeless either.

Just as I’ve often opined that we need to be circumspect rather than prematurely celebrating a takeover, we also need to reign in some of the utter negativity out there.