The Easdale Brothers, Rangers Shares, “Fit and Proper” and Charles Green

And so the Rangers saga continues …

I want to look at the revelation earlier in the week that Mr Green, erstwhile CEO, is selling or has agreed to sell his shares in the PLC which owns 100% of the shares in the company which owns that assets and business which constitute Rangers Football Club to James Easdale.

Mr Easdale, along with his brother Sandy, owns McGill’s Coaches, one of the most successful bus and coach businesses in Scotland.

The BBC suggested the sale was to be to James Easdale, whilst the Scotsman suggested it would be to both James and Sandy.

There are a few questions which arise from the story.

1                    How much of Rangers do the Easdale brothers own just now?

2                    Is there likely to be any difficulty if the Easdales acquire the shares or, as suggested in the reports, seek a Board appointment?

3                    How can Mr Green sell his shares – is he not “locked in”?

I will do my best to clarify each matter.

How Much of Rangers Do the Easdales Own Now?

According to both the BBC report and that of the Scotsman, the Easdales own 6% of the shares.

Helpfully the Rangers website lists “major shareholders”.

The list is as follows:-

Major Shareholding (3% or above):

Charles Green	5,071,629	7.79%
Hargreave Hale Limited	5,022,000	7.71%
Artemis Investment Management LLP	4,286,000	6.58%
Blue Pitch Holding	4,000,000	6.14%
Mike Ashley	3,000,000	4.61%
Margarita Funds Holding Trust	2,600,000	3.99%
Cazenove Capital Management Limited	2,450,000	3.76%
Richard Hughes	2,200,000	3.38%
Imran Ahmad	2,200,000	3.38%
Legal & General Investment Management Limited	2,000,000	3.07%

 

That list does not disclose either Easdale as an owner, nor do the companies mentioned seem to be related, unless the shares are held by one of the corporate entities as nominees. It is of course possible that each Mr Easdale, and their company, own 2% each, and so none of those would show on the shareholding lost.

However (and I have not had the chance to check the precise wording of the Stock Exchange regulations) there are rules regarding associated parties which, in general and subject to a variety of caveats, require combined shareholding in PLCs to be disclosed, as treating them as individual shareholdings could lead to market abuse (which is NOT to suggest that the Easdales are in any way involved with such an activity).

6% of Rangers amounts to about 4 million shares. At the float price they would have cost £2.8 million. The acquisition of Mr Green’s shareholding of over 5 million shares, together, potentially, with the 2.2 million of Mr Ahmad and the 2.2 million of Richard Hughes of Zeus Capital, could leave the Easdales with around 13.5 million shares, or about 20% of the issued share capital.

If the reports are correct, and they are looking for some form of control, then they are well on their way with such a holding. Of course one of the reasons for the float was to ensure that nobody could “own” the club in the same way that Sir David Murray and then Craig Whyte did.

It does not seem to have worked!

In addition, and dependent, as I will discuss relative to the third question, on the arrangements for sale, what we might now be seeing are entrepreneurial businessmen, taking advantage of a drop in the share price.

The share price now is around 58.5p, giving a market capitalisation of under £40 million. As Mr Green took great delight in telling us however, the club owned fixed assets worth £60-£70 million, and the club had no debt. It has just raised £22 million in a share issue.

Being able to acquire assets worth, based only on the above figures, around £90 million for a total cost of under £40 million would put the Easdales in the running for Businessmen of the Year 2013, following Mr Green’s claim to the title for 2012.

If the reports are correct and Mr Green is disposing of these shares then we can expect a Stock Exchange announcement giving details, including the Easdales’ existing holdings. We shall wait and see.

Are There Obstacles to the Easdales Buying Shares or Being on the Board?

No … and yes.

As far as owning shares in a football club, where that club is traded on the Stock Market, it would be impossible to police every share purchase, let alone miscreants involved in. So it would be very hard to stop someone unsavoury owning shares. (And I am NOT calling the Easdales “unsavoury”).

However where there is an active participation in an executive or Board role, or even as with Mr Romanov, as a majority owner, the “mythical” fit and proper test set by the SFA requires to be passed.

The focus thus falls on Sandy Easdale. He was imprisoned for 27 months in 1997 for a £1.5 million VAT fraud. Would that render him not a “fit and proper person”?

Mr Di Stefano at Dundee was clearly deemed fit and proper, despite convictions for fraud some years before. However, as the SFA process involves asking the person themselves if they are “fit and proper”, thus explaining Mr Regan’s reference to the test as mythical, this does not really create a precedent.

What should operate in Mr Easdale’s favour are the clear, robust and forthright words of the Traffic Commissioner for Scotland. In 2010 Joan Aitken conducted an inquiry into alleged rule breaches by McGill’s Coaches. Whilst she fined the company for failing to maintain a proper standard of service on all its rots, she commented on various matters which came before her enquiry regarding Mr Easdale.

As the Herald reported in 2010:-

She (Joan Aitken) lambasted “gossip-mongers and those who expect me to act on their chit-chat” for perpetrating what she regarded as unfounded allegations against Easdale. Referring to his entire family, she said: “I have no evidence that any of the Easdales are engaged in any criminal activities; no evidence of money laundering; no evidence of drug dealing, or of harassment, or of threatening public officials.”

Aitken did not say who the gossipers were. But she added: “No officer of Vehicle and Operator Services Agency, or Strathclyde Police, or HM Revenue and Customs, or Crown Office, or other public or private agency or corporate body or private citizen has brought me evidence (as distinct from supposition) of any wrongdoing.

“There is Mr Sandy Easdale’s conviction, which was very serious indeed and merited a hefty sentence, but he is over a decade on from that and there is no evidence of recidivism or other offending.”

Aitken, in her findings yesterday, made it clear she too wanted to clear the air about McGill’s, one of the biggest independent bus operators in the country.

There was an “elephant in the room”, she said. The Traffic Commissioner even cracked a joke. Describing Easdale’s evidence, taken in March, she said: “I observed to him that I did not think he would torch my car.” But Aitken’s findings will have reverberations way beyond McGill’s.

Strathclyde Police yesterday confirmed they had made no representations to the inquiry, despite being mentioned in a paragraph about “gossip-mongers”. Strathclyde Police, along with other forces across Scotland, has been eager to use regulatory authorities such as the bus watchdog as a new line of attack on organised crime.

…

Aitken, in yesterday’s findings, showed it will take evidence and not, as she put it, “supposition”, to convince regulators a firm or an individual is not a fit and proper person.

To use the good old term, Mr Easdale has “tholed his assize”. He committed a crime and has been punished. In addition, unlike Mr Whyte for example, his deeds are the subject of public record and public comment. It does not take a team of detectives to track down the details of the conviction.

One interesting contrast between the Traffic Commissioner’s proceedings and those of the SFA would be the burden of proof.

The Traffic Commissioner clearly saw that, unless there was evidence that a person was not fit and proper, then they should be accepted as such.

However the SFA rules appear to suggest that the burden is on the applicant to demonstrate that they are fit and proper. In most cases this distinction would make no difference, but where there is a mark against an applicant, as there is here, I think that the SFA would be entitled (and indeed obliged) to make further enquiry.

Rehabilitation is a primary goal, along with punishment, of the criminal justice system. What better way to demonstrate complete rehabilitation than by helping create a legitimate and major business, providing a vital service to many, and employing a sizeable workforce?

And finally in this section, I have no doubt that “gossip-mongers” do not exist in Scottish football …

How can Mr Green sell his shares – is he not “locked in”?

Yes he is.

A lock in, or lock up period can be defined as:-

A window of time in which investors of a hedge fund or other closely-held investment vehicle are not allowed to redeem or sell shares. The lock-up period helps portfolio managers avoid liquidity problems while capital is put to work in sometimes illiquid investments.

The effect and purpose are as follows:-

IPO lock-up is a common lock-up period in the equities market used for newly-issued public shares. IPO lock-ups typically last anywhere from 90 to 180 days after the first day of trading, and are in place to prevent shareholders with a large proportion of ownership (such as company executives) from flooding the market with shares during the initial trading period.

This suggests that Mr Green has agreed to sell his shares, but has not yet been able to do so.

Whilst a company could remove the lock in, that would require various formalities and there are no signs that has been done.

Instead it is perfectly legitimate to reach an agreement to sell at a future date. What would be very interesting would be to find out what price has been agreed.

Is Mr Green selling at a fixed price, so both parties have a risk dependent on whether the shares go up or down in the intervening period?

Is the share sale to be at the prevailing market price on the date of sale?

Does Mr Green have to wait till the end of the lock in and, should some unforeseen disaster strike the company and an insolvency event occurred (this is purely a hypothetical comment and no slight is intended on the solvency of the most financially stable football club in the UK © Imran Ahmad), would Mr Green get nothing?

Now Mr Green is in the fortunate position of having acquired his shares through very advantageous (and entirely legitimate) share options as agreed by the Board which employed him. In theory therefore, selling his shares for 2p each would double his money.

However, with the shares having traded at over 90p, then I am sure Mr Green hopes to receive a sum far closer to that than to what he paid for them!

If the Easdales want a place on the Board then presumably they would want to actually own shares?

If a sale has been agreed now at a fixed price, then might this too affect the rights of other shareholders? Having 5 million shares, being almost 8% of the company hit the market would normally, on the laws of supply and demand, depress the price.

I am sure that we will have a Stock Exchange announcement very soon to make the whole matter crystal clear.

Posted by Paul McConville