Rangers takeover: Withdrawal by Bill Miller was a rational decision

THE withdrawal of an £11.2million bid for Rangers Football Club by US businessman Bill Miller took most people by surprise on Tuesday.

Even Duff & Phelps, the administrators of the insolvent club and closest link to the bidder, appeared to be blindsided by this new development. Naturally, much has been made of the alleged abusive correspondence by Rangers fans to Miller and his family, but was this really a major factor in the rapid cooling of interest?

Several reasons were provided. One, the financial forecasts given by Duff & Phelps were overly optimistic; two, the expectations for investment in the club were not consistent with Miller’s organic growth plans for Rangers; three, the uncertainty regarding SFA/SPL sanctions and player contracts made the formation of a viable turnaround plan exceptionally difficult; and four, the vitriolic fan reaction.

With Craig Whyte’s purchase in mind, the cynicism greeting Miller’s personal turnaround has been palpable. Although this is understandable, one must take a step back from the cauldron to see that the decision made by Miller was a rational response to the difficult situation facing him.

The colourful pronouncement heralding Miller’s bid stated that he wished to transfer the assets of the indebted club into an “incubator” and achieve a debt restructuring deal, or CVA, with Rangers’ creditors. He would then subsequently remerge the “incubator” with the old club to preserve its history. Furthermore, the bid would only proceed if the football authorities gave clarity on any sanctions that may be imposed on the club.

Only after preferred bidder status was awarded to Miller could his representatives enter into serious negotiations with the football authorities. This is ostensibly the only real information to which Miller would not have had access prior to submitting his bid. It is therefore the only real factor that could justifiably have led to the bid withdrawal. Given that there is still no clarity from the SFA and SPL on the sanctions to be imposed on Rangers, Miller’s actions may be deemed predictable and understandable.

If Miller is not to blame, should Duff & Phelps be censured for wasting crucial time in giving preferred bidder status to the wrong party? Have they unnecessarily dragged out the administration by demanding exclusivity fees to later drop the requirement? Why have they not wound up Rangers Football Club when it appears there is no real bidder coming forward? Have they acted in the creditors’ best interests while charging fees of £200,000 per week?

A brief analysis of the choices facing Duff & Phelps may help provide some insight into their decisions to date. First, is the assumption that the assets of Rangers could individually be sold off to realise a higher return for creditors. The basis for this is the recorded accounting value of £109 million for Ibrox, Murray Park and Albion Car Park. In reality, this figure is nowhere near the amount that could be raised in a liquidation sale.

Duff & Phelps will know that any sale of assets will take months to achieve and incur substantial transaction costs. A willing buyer would need to be found and Rangers’ three main properties are each subject to planning restrictions that severely curtail the potential of new commercial opportunities. Redevelopment costs will be substantial, especially for the Albion Car Park which may require decontamination work to neutralise the remnants of Govan’s industrial heritage. Taken together, the market value of Rangers’ property in liquidation is very likely to be negligible.

This may explain why Duff & Phelps have been so reluctant to sell players. If so little can be realised from the property, the only value left in the club is the football team. The administrators will realise that other clubs, knowing Rangers are desperate to offload players, will very likely submit unacceptably low bids for any player offered to them.

All that Duff & Phelps are able to do, it seems, is seek a buyer for the club. This, I believe, is the reason why they have accepted countless delays to their deadlines. It is why they have not considered player sales, and it is why they are pursuing another bid after Bill Miller has stepped back from the fray.

• David Hillier is a Professor of Finance at Strathclyde Business School.