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Future Of The Club


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I think Betty thinks the club will now only want big investors. 

 

The Red Final did an excellent piece on it when the public to private planned change was first announced. 

I don't expect many on here to read it but here it is anyway.

 

A LONG READ.

If you are a shareholder in AFC, you may, like us, be wading through the document sent to you this weekend by the Club, asking you to approve the proposal to de-register it as a plc and return it to private limited status. You may be under the impression that this is a pretty dry topic of little practical import; you may well be right. However the scope of this hugely limited ‘consultation’, and the cursory nature of the media reporting on it, underplays its significance. With no opportunity to debate this in a more appropriate format, and as the proposal will have been waved through before the next possible TRF release date, here – with apologies for the length of what is essentially a fanzine article contained in a Facebook post – is our take on this.

First things first, let’s be clear about what this re-registration is NOT. It is not a buyout of individual shares; but nor is it a forced surrender of them. Individuals who currently own shares in AFC plc will continue to hold shares in AFC Ltd, albeit in a significantly diluted proportion. That in itself is no different to previous capital injections from various investors who have been given newly issued shares in return for their cash.

So why on this occasion the need to take the company private? On the surface it is essentially a fly move to circumvent takeover rules. The scale of the proposed investment, and the fact that all of the named investors are deemed to be acting in concert due to their connection to US venture capitalist firm Battery Ventures, is such that it would give the parties control of just under 50% of AFC, well above the 30% limit at which they would be compelled to make an offer (at the same price per share) to buy all remaining shares in issue. The investors state that they do not wish to do this – indeed, that £2m of the £4.5m proposed investment would simply be withdrawn if they could not avoid this requirement. In that respect, it is essentially a threat: agree to take the club private, or we will invest less.

It is noted that removing the club’s plc status is not the only way to avoid the compulsory purchase offer. You will recall that only five years ago, AFC accepted a far more significant investment of nearly £15m to make the club debt-free. While it did involve shareholder approval, it was put through in a way that specifically avoided the need to force a takeover offer. From the BBC article on November 2014: “As part of the restructuring plan, the net debt of the club will reduce by £14.49m and its share capital and reserves will rise by the same amount. Debt of £4.42m owed to the Stewart Milne Group will be converted to equity. SMG shareholding in the club will rise to around 43% but only up to 29.9% of this would be voting rights.”

If that does not suit and the investors want the voting rights without the compulsory purchase requirement, obtaining a ‘whitewash waiver’ from a majority of the remaining shareholders by value – confirmation that they are happy for the investment to be accepted without the opportunity of selling their holdings being presented – releases the investors from this obligation, and given that such a significant proportion of AFC stocks are in the hands of a small number of individuals and companies represented on, or associates of, AFC’s board of directors (current and past), it would be a foregone conclusion that this would be received. However, the new investors also state that they do not want to go down this road, for the stated reason that it would be time-consuming having to go through it every time they might wish to make further investment in future.

That much is true. But as already stated, there is zero practical risk of a compulsory purchase ever being applied due to the weight of ‘friendly’ shareholders, so if all it delivers is a bit of convenience for the Club’s admin team then it is certainly worth investigating what else could possibly be lost in the move to private status which may be a price too high to pay.

In that respect, important detail is contained elsewhere in the Club’s document, in the section where proposed amendments to the Articles of Association are laid out. The major concerns are twofold.

Firstly, in the area of Conflicts of Interest. It is proposed by AFC that Article 89(H), which currently states: “A Director must not vote or be counted in a quorum in respect of any matter in which he has an interest”, be changed to “allow the directors to authorise conflicts”. This is of particular current relevance to AFC because, as a plc, a Director who might have interests in, for example, the construction industry would currently be barred from having a say in, for example, the disposal of a significant capital asset for development purposes; but as a private company with the redrafted Articles of Association a quorum of the remaining Directors could decide to authorise such a person’s executive participation (subject to discretionary limitations regarding information disclosure). That is obviously a partly flippant example, but the fact remains that where a plc director is explicitly barred from influencing a decision which could result in his personal enrichment, directors of private limited companies are not.

Secondly, and perhaps of more lasting concern, one major difference between private and public limited companies is that the former are not legally bound to offer shareholders the opportunity to oversee business by way of an AGM. AFC advises that their proposed Articles of Association will keep this requirement as a show of good faith, but when an inalienable right is downgraded to become a benevolent courtesy, it is obvious that it becomes vulnerable to being withdrawn at a later date. It would not be unheard of for a company, once it has managed to get its Articles of Association passed, to use the powers conferred within them to tighten their terms.

It is of critical importance, at this point, to remember that the change we are being asked to ratify here does not merely apply today, to the stewards of the Club who currently reside and whose motives there is no concrete reason to doubt at present. This decision will be a permanent one. Any football club is only one or two transactions away from falling under the control of a Craig Whyte, a Vladimir Romanov or a Giovanni di Stefano, and AFC is not immune to being circled by such vultures in years to come. We must consider extremely carefully any act which makes it more likely that such an individual may be able to wield unfettered and unsupervised power.

Whilst it is true that, even in its current plc format, there is no hope of the punters on the floor ever carrying a vote on AFC business if opposed by the main shareholders, that does not mean that the inviolable right to an AGM and the protection of conflict of interest rules are not conceptually important to fan-shareholders. Far from it. The forced transparency which public status entails means that, as the Club’s most important commercial base, fans can and do impact business decisions with the strength of their opposition, as they can not only withhold their own custom but influence those of others. The reputational damage of being shown up by the rank and file at an AGM, even if saved in the short term at the ballot box by corporate connections, has been demonstrated before. That balancing influence must only be given up at a fair price.

All investment in our Club is welcome, of course it is. But here we are being asked whether conceding the potential destiny of our Club is worth a mere £2m – a relatively small contribution towards the construction of a stadium whose location is not unarguably in the best interests of AFC’s future in any case. The answer to that question is not as straightforward as the AFC Directors would like you to believe. By way of comparison, if the Club were to propose selling Scott McKenna for £2m to realise funds for the stadium, most would immediately recognise the short-termist folly of undervaluing the asset, and while it is harder to put a price on an intangible asset such as the maintenance of legal protection for the Club’s structure, that doesn’t mean the principle doesn’t apply.

It is also worth noting that the timescale afforded by AFC here does not appear to be commensurate with the magnitude of the decision. This proposal was dispatched to shareholders on June 7th, with the meeting at which it is to be ratified taking place a mere three and a half weeks later, and at 3pm on a Tuesday afternoon (distinct from the regular evening slot the AGM has always occupied). This hardly seems designed to encourage maximum engagement amongst individual shareholders. Line-by-line deliberation over the company’s Articles of Association such as that which AFC has clearly undertaken does not happen overnight so it certainly seems as if the Club has scheduled this to blindside its fan-shareholders, forcing this through during the football close season when the opportunities for concerted debate are at their lowest.

Ultimately, of course, this is a done deal. The vote is a formality, there is enough voting power behind it to pass the resolution regardless of the individual fan-shareholders’ views. But that does not mean that we must all fall in line and provide complicity. You are urged to read the documentation carefully; consider all its impacts, both intentional and inadvertent; and cast your vote according to your conscience. For that reason, though a futile gesture, we will be voting Against

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The change from a public to a private limited company has came about because they don't want you're kind of investment.

 

Unless you have 500k+ to invest that is.

 

Really don't see how the article you posted in any way supports this claim?

 

Also don't think there is anything remotely controversial in that article, essentially individual shareholders will have the same rights they have now and it'll be easier for larger investors so put money into the club without buying everyone out.

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