Stuart Bathgate: Hearts liquidation threat is real

IF YOU agree to sell someone’s house for them, you cannot simply accept the first offer that comes along. Especially if you have signed a legally binding contract, you’re duty-bound to haggle.

In that sense, the statement made yesterday by Ukio administrator Gintaras Adomonis was wholly predictable. Three parties have put in offers for Ukio’s 29.9 per cent shareholding in Hearts: two have been told they have not bid enough, and the other has been dismissed.

As managing director of UAB Valnetas, Adomonis’s job is to get the maximum value for Ukio’s creditors out of Hearts. Creditors often have a big say in which administrators are appointed, and if he became known as a soft touch, he would soon find himself out of work.

What is more, Adomonis’s mentioning the possibility of liquidation, for all that it understandably provoked a worried reaction in many Hearts supporters, was equally predictable. Since the Tynecastle club went into administration in the middle of last month, that possibility has been there, as one of two potential paths. Whether you run a football club or any other business, once you are in administration you either achieve a CVA with the agreement of at least 75 per cent of the firm’s shareholding, or you are liquidated.

That stark reality has been visible every day to the leading figures in the Foundation of Hearts who have been negotiating in an attempt to be named as preferred bidders for the club. And, being aware of the gravity of the situation, they reacted in sanguine fashion to Adomonis’s threatening words.

If Vladimir Romanov’s ruinous reign had come to an end five or six years ago, we would be in a very different position just now. If the Foundation, Bob Jamieson’s HMFC Ltd, and Angelo Massone’s Five Stars Football Ltd had all submitted the size of bids they have put in now, Adomonis’s threat to liquidate the club would have a far greater chance of becoming reality. Worth an average of little more than £3 million up front, the bids of all three would have been dwarfed by what the ground could have made on the open market. It would not have fetched anything like the £20m-plus deal that Chris Robinson agreed with Cala Homes back in 2004, but it would still have been worth a lot more than it is now – somewhere in the region of £4.5m, according to the most recent independent valuation.

Adomonis might then have had an open-and-shut case for liquidation. Even if he could only get £10m for Tynecastle, that would be double what any of the three bidders have put on the table this time.

But this is not five or six years ago, and the Edinburgh property market is not what it was. And even that valuation of £4.5m is no more than a guesstimate: until a buyer comes along with a specified sum, the value of anything is zero.

Which is why Adomonis should firmly resist any temptation to be pleased with himself for playing hardball with Hearts, and instead make a cold assessment of the risk he will run if he opts for liquidation. What if, after rejecting the overtures of the three parties who want to buy Hearts, he found that no-one was willing to buy the ground?

Any property developer would not only need to stump up several million to buy the land, then another half-million or so to clear the site, they would also have to factor in considerable reputational damage. After all, anyone instrumental in closing down Hearts is likely to be loathed by a substantial section of Edinburgh’s population. The bad publicity would simply not be worth it – and that’s before we take into account the lengthy legal battle that any plan to build on Tynecastle would face.

In other words, there is a strong possibility that no single company would be ready and able to take on the task. When there are brownfield sites that can be built on with the active encouragement of Scotland’s political class, why run the risk of taking on a property venture that would face vociferous opposition every step of the way?

Whatever skills he may have as a financier, Adomonis has little or no hands-on knowledge of Scottish society. His position as administrator of Hearts’ second-biggest shareholder confers considerable power; but that power could easily become self-destructive if he over-reaches himself.

For the time being, however, he has not done so. Indeed, while the prospect of liquidation became the focal point of the statement he issued yesterday, the dismissal of Jamieson’s bid was arguably the more important element of it.

From now on, for as long as there is a chance of a CVA, it is a straight fight between the Foundation of Hearts and the group fronted by Massone. As far as is publicly known, the latter have offered a bigger amount up front, but have conducted no due diligence and have not earmarked a sum to help bridge the funding gap at Tynecastle over the next two or three years. The Foundation’s bid, by contrast, is greater in total, has been formulated after due diligence, and includes working capital designed to get Hearts back on their feet.

If both offers are found to be equally credible – that is, Adomonis deduces that they do indeed have the money they claim – Massone would appear to be in the driving seat. But that would only come to pass if BDO were to certify Massone as a fit and proper person to run a football club under the SFA’s rules – and his track record at Livingston makes that inconceivable.

It therefore still looks like Adomonis will end up with the Foundation of Hearts, and an offer for the Ukio shares that may be less than he would like – but more than he could get from anywhere else. Yet even if that happens, Massone will still have done some damage to Hearts simply by being a rival bidder to the Foundation, driving up the price, and thus reducing the amount the Foundation has left to spend in the event of its taking over the club.

Taken from the Scotsman