BSH: In Need of Approvals

It’s safe to say that while on the pitch the season is coming to an anticlimactic end for Blues, off it appears to be a very different story. It hasn’t taken long for the rumours to fly on social media of just which investors might be behind potential new owners Often Partisan Limited.

Hong Kong Stock Exchange

I think it was inevitable that fans were going to speculate about new ownership.

As I’ve said myself on Friday on the Fat Lads Go In Goal podcast, we’re in uncharted territory when it comes to levels of hope that this saga may just be coming to an end.

For the first time there has been an official announcement from BSH that they are willing to let go of any of their stake in the club. More importantly, there was a timeline of how quickly things are likely to happen.

There’s been all kinds of questions about what is going to happen now and while I touched on some briefly in my piece last week, I’ve now had time to put together a more detailed idea of what happens next.

EFL Approval

While this announcement regarding these two letters of intent confirm that the deal for 45.64% of the club along with the stadium is now in the final part of negotiations, it doesn’t go into detail regarding the approvals required to ratify the deal.

As it stands, there are three different approvals that OPL need to get before the deal can be completed.

Firstly, this deal needs to be ratified by the EFL.

Having seen the mess that Maxco got themselves into last season which has eventually ended up with them being officially sanctioned by the EFL, it seems obvious that OPL will need to heed those lessons.

Helpfully, the EFL published the Agreed Decision for those sanctions last week which went into detail of where Maxco fell foul of EFL rules.

To quote from paragraph 14 of that document:

However, in respect of paragraphs 12.8 and 13.2 the EFL notes that parties to proposed transactions (and those advising them) cannot reasonably assume that the EFL will not have concerns about arrangements in relation to proposed acquisitions of ownership of Clubs simply on the basis that relevant transactional documents have been submitted to the EFL. If aspects of a transaction might give rise to concerns in respect of the OADT or otherwise, then such aspects should be proactively and expressly highlighted to the EFL, which may then (in its discretion) give an express, clear, and unequivocal view in respect of such identified arrangements and their apparent compliance or otherwise with the EFL Regulations. Unless the EFL has provided such an express, clear and unequivocal view, it cannot be assumed that any potentially contentious aspect of a transaction is not of potential later concern to the EFL.

While that might seem a bit wordy, the essence is that while it was all well and good Maxco filing documentation with the EFL, the onus was on Maxco to make sure the EFL actually approved it. The absence of objection isn’t enough.

This means it’s imperative for OPL (or anyone else for that matter) to ensure that they get the EFL’s unqualified approval BEFORE committing to anything; especially if it’s with respect to taking control of the club.

HKSE Approval

The second approval OPL and BSH will need to get will be from the Hong Kong Stock Exchange.

This is a slightly more opaque process as it will necessitate some careful negotiation between all parties concerned due to the way the deal is structured.

At this moment in time, BSH are still doing everything that they can do to keep hold of their precious HK main board stock listing.

This means that the deal will need to be a balancing act; offer enough concessions so that OPL don’t walk away, yet don’t give so much away the HKSE tell them they will lose their listing.

It’s worth noting that the details being negotiated won’t just be with regards to the sale of the stake in the club.

Management, financing and other arrangements of the Club following the completion of the Potential Transactions will be set out in the definitive agreements in respect of the Potential Transactions (the “Definitive Agreements”).

As detailed in the announcement to the stock exchange last week, when the “Definitive Agreements” have been signed off they will also outline things such as how the club will be managed from a control perspective, as well as who will be financing it and how.

As far as I’m concerned, this is the true test of the deal and the part I’ll be paying most attention to when it is announced.

For example, who controls the club following the deal is a huge issue. There has been much cynicism online that BSH will retain control of the club following the deal, as they will still own 51% of it.

If OPL are to restore fan confidence in the ownership, then they must be able to make it clear that they are calling the shots going forwards.

I think it’ll also be important for the EFL, as they will not want anything from this deal to bite them on the ass. There must already be some embarrassment felt by the EFL for the state the club is in now and the league will want to be seen to be stop that from potentially recurring.

Shareholder approval

The final approval that will need to be sorted is from the shareholders of Birmingham Sports Holdings.

Under HKSE rule 14.08, there are specific thresholds that have to be met to designate what kind of transaction this is.

HKSE ratios

As the transaction between OPL and BSH will be for 24% of Birmingham City plc, it will account for about 30% or so of the total current revenues of the BSH group.

This makes it a “major transaction” as per the table above.

Approvals required

Rule 14.33 outlines that a “major transaction” requires an announcement to the stock exchange as well as a press announcement, along with a circular sent out to shareholders with full details of the deal so that shareholders may give approval at an Extraordinary General Meeting (EGM).

The process for this will take about seven weeks after the “Definitive Agreements” are signed; four weeks for the circular and three weeks for an EGM to be called and held.

The actual shareholder approval will be a foregone conclusion. While Vong Pech will not be allowed to vote as his company is directly involved in another part of the transaction, there are enough shares in major shareholders hands to force approval.

Knowing this procedure, we know that given the original letters of intent were signed on April 12, as the “Definitive Agreements” need to be done in 60 days they should be signed off by June 11 and the EGM held by early August.

It’s worth noting this is based on maximum timeframes; OPL will want to get things in place much quicker if they are to have control for pre-season and I have no doubt they’ll be pushing hard on their legal and financial assistance to get this done as quickly as possible.

One thing in all this piece I’ve not mentioned is the Wang Yaohui investigation. As of the time of writing there is still no indication exactly when the EFL will announce the charges in connection with that investigation, which isn’t helpful for me writing this.

While BSH are doing all they can to hold onto the listing, they must know that the clock is very much ticking for these charges to be confirmed.
They will also be aware that the EFL are not the only regulatory body who is investigating Wang Yaohui’s influence.

I should imagine that the prospect of a financial regulatory authority in Hong Kong being involved will be something that they are very scared of.

While caveating this with confirmation that I’m neither a lawyer nor an accountant, I do think that BSH will be pushing to get this part of the deal done as quickly as possible to bank the proceeds.

Once the proverbial shit hits the fan, I’m hoping and expecting that OPL will screw them into the floor.