Hello Boss! Nice to hear from you again. I've annotated your response
Poor Broken Stocker.
He’s only about £47m out with his numbers
Nowhere do I quantify the loss. I stand by the assertion that unless someone values RFC at £100m MIH will have to write off the difference. As you point out it's well nigh impossible to work out just how much of the stock is held directly by MIH.
Even for Broken, that’s some sort of record. Like many stockbrokers and analysts he has plenty experience in commenting on consolidated accounts. But not in understanding them, and certainly not in the mechanics behind them.
Your faith in my abilities is touching. As you've never met me in any professional capacity that's quite a leap of faith on your part. The only material of mine you've read has been written with the non-financial reader in mind. I'm happy to sacrifice technical correctness, for layman's understandability.
But before the numbers, there is another point to make. He has completely failed to address the fact that the supposed ‘conflict of interest’ which may have caused SDM to stand down has subsisted since at least the share issue in 2004. At that time, it was in Rangers’ interests to be sold to a new owner for £1, but clearly not in the interests of Murray International Holdings.
Why then pen an article which suggests that a ‘conflict of interest’ that has been there for nearly 5 years is now a probable cause of SDM’s resignation? Perhaps because Broken had decided on his conclusion first and then tried to come up with some facts to fit. The implication of the title, with or without a question mark, is simply wrong. That ‘conflict of interest’ did not cause SDM’s resignation.
There are times when a potential conflict of interest does not matter. Given the increasing financial pressure both companies are coming under I would suggest that we have reached a point where it does matter.
On to the numbers. “Bottom line is that unless someone values RFC around £100m - £79m plus the debt - then MIH will have to write off the difference.”
Oh dear. Sadly Broken has double counted Rangers’ debt. It is already included in the £79m net asset value of Rangers that was consolidated last year. So he is already out by £21m which was last years debt figure. (As an aside, don’t be surprised if our net debt in the soon to be published accounts to 30 June 2009 is north of £30m.)
Not double counting. If I bought Rangers at book value of £79m (last year) I would also have to take on the debt of £21m, therefore I would have to value the club at £100m. You're surely familiar with the term Enterprise Value?
The next problem with his numbers might only be understood by the most nerdy of beancounters amongst us. You’ll probably need to take my word on this one; he has completely missed the point that there are substantial minority interests in Rangers.
The last time I looked, SDM actually beneficially owned closer to 60%-65% of Rangers (I can’t recall the exact figure and it would take me a few hours to work out the current position) even though he ‘controlled’ over 90%. These minority interests, Dave King amongst them, are obviously already excluded from the shareholders funds in the MIH balance sheet.
This means that any amount by which the sale proceeds fall short of the net asset value of Rangers is attributable about one third to the minorities. So Broken’s error here puts his number out by about one third of the £79m net assets of Rangers (i.e. £26m).
I've not quantified the actual loss to MIH. I stand by what I said; buy Rangers at less that £79m and MIH will take a hit to its balance sheet.
Finally, his comment: "Every year when the MIH accounts come out, the Celtc-minded always come up with "He's doomed" articles." You've got to laugh. Broken Stocker has himself been doing that for years. Seriously, you couldn't make it up.
You just have! I defy you to find any article that I have written saying MIH is doomed. I can assure you I've never written one. But hey, why let the truth get in the way of few cheap shots.
So two fundamental errors of £21m and £26m. No and No And a title and conclusion that make no sense. Maybe not to you!
Better luck next time. Et tu Brute!