The Takeover: A Buyer Friendly Deal

On Tuesday Birmingham Sports Holdings filed a series of documents with the Hong Kong Stock Exchange. As well as the long-awaited Circular to shareholders, BSH confirmed that the EGM for shareholders to approve the sale of Blues to Shelby Companies Limited will take place on July 13, 2023.

Wagner and Pals

There are a total of five documents filed in total in addition to the forms for the EGM. These five documents consist of the Letters from the Board, Independent Board Committee and Independent Financial Adviser to Birmingham Sports Holdings, as well as the Written Consent from the Independent Financial Adviser and the Share Purchase Agreement.

They can all be accessed at this link.

The notice confirming the date, time and location of the EGM can be found at this link.

I’m not going to lie, these documents are not for the faint hearted. With over 170 pages of text – much of it laced with legal jargon – they’re not great reading for the average fan.

The key points you need to know from these documents:

  • The EGM will take place at 16:00 HKT (09:00 BST) on July 13. Ironically enough, the meeting will be held in the same place as the AGM I attended in December when I was told that the club wasn’t up for sale.
  • As per previous announcements, the EGM is a foregone conclusion due to undertakings from Paul Suen and Lei Sutong to vote in favour. Vong Pech cannot vote as he is a connected party.
  • Once the deal has gone through, the debt of approx £122m owed by the club to BSH and Oriental Rainbow Investments will be completely wiped out.
  • Shelby Companies Limited have protected themselves from having to pay potential financial liabilities to various people and entities such as Maxco.

While almost all of the letters from the Board, the Independent Board Committee and the Independent Financial Advisor are already known to us from previous announcements, the contents of the Share Purchase Agreement are not.

With this in mind, I intend to concentrate on that document in this article.

As usual, please be aware that I’m not a lawyer nor an accountant, and that my opinion is based on the information I know and the people I have spoken to. While the documents are long and boring to read, it is worth looking at them to help build your own informed opinion.

The Debt

When it comes to football clubs, debt is something that is taken for granted. It costs a huge amount of money to run a football club in the Championship and most football club owners end up trying to work out if they’re ever going to get their money back or if they’re going to have to write it off.

The debt Blues owe to Oriental Rainbow Investments and Birmingham Sports Holdings has been indicative of how much money those companies have pumped into the club.

As it stands, it’s my understanding that the debt Blues owe ORI and BSH is around the £122M mark.

Now, while £122M in debt is scary, in my eyes I saw it in the same way a homeowner sees their mortgage.

Mortgages on houses can be multiples of yearly income, but as long as the debt is serviced (ie the mortgage is paid), it’s not an issue.

This debt Blues owed to BSH and ORI was the same.

There were guarantees given in the accounts that neither ORI nor BSH would call it in, and as such everything was okay.

However, the debt is also the elephant in the room when it comes to selling the club.

After all, it doesn’t make sense for BSH and ORI to sell any stake in the club without knowing that they’re going to get their money back.

In situations like this, it’s not unusual for the sale to be for a token amount and then for a proportion of the debts to be repaid.

This is what has happened in this instance.

According to the Share Purchase Agreement, SCL have paid:

  • £1 for the 24% of the club they’re buying from BSH
  • £5,293,593.36 in payment for 32% of the loans owed to BSH

SCL have then ensured that the remainder of the debt has been wiped from the books.

Now, I’ve seen various people from the wrong side of the expressway express mirth at the apparent cheapness of the deal on social media.

Unfortunately for those people, I think that their schadenfreude is somewhat misplaced.

What they fail to realise is that this is an excellent deal for Blues fans, as it removes one of the huge encumbrances holding our club back.

The better news is that it’s not the only way that SCL have screwed BSH into the floor.

The Indemnities

Section nine of the Share Purchase Agreement deals with various indemnities that SCL have sought from BSH prior to buying this stake in the club.

Indemnities are important. What they do is protect SCL from any of the problems that have affected BSH in the past from biting SCL on the arse.

There’s a number of specific indemnities listed, some of which back up previous stories on this website.

The first two cover SCL against any breach that anyone connected with the club has made with respect to defaulting on loans or breaching FFP rules and I should think are fairly standard.

The third indemnity isn’t.

It covers SCL against any breach of EFL regulations (or any other Football Regulations) including but not limited to “the Lainn Yee Loan”.

The Lainn Yee Loan is specifically defined in the definitions at the start of the SPA document as:

Lainn Yee Loan means the amounts owed by any member of [Birmingham City plc] to Lainn Yee Limited (or its successors or assigns) (including any accrued and unpaid interest and fees in connection with such amounts);

This indemnity is important as it relates to the Wang Yaohui investigation.

Back in December 2017, I wrote the second article in my “Elusive Mr King” series covering details of a deal made by BSH to swap a loan made by two companies for equity in the company.

One of those companies was called Chigwell Holdings and documentation I posted on confirmed at that time Chigwell Holdings was 100% owned by a British Virgin Island company called Lainn Yee Ltd.

I published various details back then of how Lainn Yee was connected to Wang Yaohui, helping to build the picture of his shadowy control over the club.

While I’m not sure if the loan referenced in the SPA is the same as the one in that article, I am sure that the indemnity is SCL very carefully protecting themselves from any fallout from any investigation into Wang Yaohui.

The fourth indemnity is against any person claiming a finders fee in connection with this sale. It specifically names Keith Harris, who was the person who brought Laurence Bassini forward as a potential purchaser in 2022.

Harris has previous for claiming finders fees in court from Blues, stinging Carson Yeung for £2.2M in 2010 after introducing Yeung to the Gold/Sullivan regime in 2007.

The fifth indemnity specifically names Maxco Capital Co Ltd. While it doesn’t mention specific figures, I think we can safely assume that this paragraph protects SCL and the club from Maxco trying to claim back the near £8M invested last year.

I’d think if Maxco want to get that money back, they’re going to have to chase Vong Pech and / or Great Summit Ventures Limited.

As I believe Great Summit Ventures Limited are a British Virgin Islands company I think that’s going to be one tough fight.

There are also indemnities against any outstanding invoices for stadium repairs from dates prior to April 1, 2023; against claims made by various ex-employees in Employment tribunals and against non-compliance with “Asbestos Laws” at St Andrew’s and Wast Hills.

The other indemnity which really interests me is the eighth one listed, which protects SCL and the club from any settlements entered into by anyone from Birmingham City plc in relation to the “Disputes”.

There are three disputes named in the definitions, namely disputes with:

  • UE Cornella
  • BeSoccer Solutions SL
  • The Energy Checking Company Limited

While I think the disputes with BeSoccer Solutions SL and the Energy Checking Company Limited are likely to be to do with non-payment of bills, the Cornella one is almost certainly related to the documents signed by former Blues CEO Ren Xuandong to buy UE Cornella, as published on this website in October 2021.

This is a lot to take in, so I’ll summarise it all with one thought.

The reason a buyer does Due Diligence is to find all of the problems a target company may have prior to purchase.

I think the fact that all of these clauses have been included shows the strength of the DD done by SCL; and more so, it shows how they have used this quality of DD to really screw BSH into the floor.

I’ve probably only really scratched the surface of the work that has been done by Shelby Companies Limited and by Jeremy Dale / Often Partisan Limited to get this deal done.

However, from these scant details I feel really confident in how things are going to change after the EGM.

There are fifteen days left until this is all over. Just being able to write that fills me with so much happiness, and I hope it does you too.

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