Sir Alex Ferguson is likely to profit from the Glazer family’s partial flotation of Manchester United, documents filed with the US Securities and Exchange Commission (SEC) revealed on Monday. The legendary United coach, who has been forthright in his defence of the Glazers since the American’s summer 2005 leveraged buy-out, may benefit from a share of $288 million set aside for employee options if the New York Initial Public Offering is successful in the coming weeks.
The Glazer family is seeking to raise up to $330 million from a 10 per cent flotation of the club on the New York Stock Exchange (NYSE) that has left many fans angry, especially as the Americans are set to use just £75 million of proceeds to pay down United’s £423 million debt. It is a u-turn that has brought scorn from fans’ groups and investors alike.
On a dramatic day at Old Trafford, United also announced a new shirt deal with General Motors (GM), the partially state-owned American auto-maker, which will see the club sporting Cheverolet branding for seven years from the 2014/15 season onwards. It is a deal, announced almost two years before United’s contract with principal sponsor AON runs out, which provokes plenty of questions ahead of the club’s on-off-on again IPO.
Indeed, as United announced the deal Monday afternoon, GM parted company with its high-profile chief marketing officer Joel Ewanick; the 52-year-old CMO was brutally sacked over his part in two separate sponsorship deals with the club in the past two months. GM management is said to be angry over Ewanick’s handling of the deal’s fine print, which provoked a last-minute renegotiation to ensure Cheverlot branding will appear of United’s shirts in two year’s time.
Yet, Ewanick’s dismissal is only one mystery on a day that saw United ink, potentially, the most lucrative deal of its kind in world football, while setting an ambitiously high valuation on the club ahead of the controversial New York IPO. United announced the new sponsorship package with the car manufacturer just hours before filing an amended F-1 form with the SEC.
The sums may be huge for both sponsorship and IPO. The Daily Telegraph claimed United is set to receive a record £196 million over seven years, while Reuters reporting inside knowledge of a £382 million deal. Whatever the true number, the deal will surpass that secured by Barcelona, with the Catalan club sporting Qatar Foundation branding for around £25 million per season.
Meanwhile, if the deal with GM, which is still 26 per cent owned by the US Federal Reserve after it received a government bail-out in 2009, was positive news for Glazer family, the American’s used it to bury an even more dramatic turnaround in the club’s US flotation. The IPO is back on after the FT reported a “pause” in proceedings last week.
But the on-off-on nature of the flotation is only part of the drama as details emerged of the family’s intention to take around half the IPO proceedings for themselves, with only a fraction likely to be used to pay down the club’s huge debt. Should the IPO get away as planned United’s gross debt will fall to around £350 million, with interest savings of just £5 million per season from the float.
Once again the Glazers’ business model exposed as a sham; built to keep one step ahead of the banks, and the family in ready cash, while milking the club for every penny of value.
But it is the provision for a substantial carve out of share options for ‘selected senior management and employees’, in addition to eight million shares being sold by the Glazer family itself, which will surely anger fans. While a similar number of shares is being sold by the club, the Glazers will suffer almost no dilution in their grip on power at Old Trafford, with provisions to issue two classes of shares still in place.
“Supporters are going to be very angry about this,” said Manchester United Supporters Trust (MUST) chief executive Duncan Drasdo.
“The Glazers have already cost United more than £550m in debt related fees and now another slap in the face as they help themselves to half of the proposed IPO proceeds. Each of the six lineal descendants of Malcolm Glazer will claw out $25 million for themselves.
“Clearly this has nothing to do with benefits for Manchester United and is all about giving the Glazers quick access to desperately needed cash at the expense of our football club.
“There is now no doubt that this IPO is bad for Manchester United supporters, Manchester United Football Club and any investors gullible enough to pay the inflated price they’ve attached to inferior shares.”
Meanwhile, United manager Ferguson may be among those senior personnel selected to be part of the 2012 Equity Incentive Award Plan, which will be funded from the further sale of 16 million shares in the club. If Ferguson’s involvement proves true – and how could Ferguson not be a beneficiary along with chief executive David Gill – then many supporters will be left confused and rightly angry.
After all, here is a manager without peer in modern football, who has brought unprecedented success to the club, but may directly profit from the Glazers’ debt-loaded business model. Moreover, if Ferguson is to profit from the scheme fans should question whether they can ever take the manager’s words of praise about the Glazer family seriously again. Once a man-of-the-people, Ferguson has seemingly become a central cog in the machinations of cynical greed.
But the debate, of course, is moot until both confirmation of those beneficiaries leeks out and the IPO gets away. Neither is certain, with investors roundly critical of the Glazers’ plan which, if anything, offers less to those buying into the flotation than ever before. After all, there is no plan to offer dividends, while the family will retain more than 97 per cent voting control of the club.
Moreover, with an equity value of around £2 billion many investors have publicly baulked at the cost, with shares priced at between $16 and $20. Taking the mid point of that range, the Glazers are seeking a 20 times EBITDA multiple on the asset – 24 times given the implied enterprise value – for a business whose profit fell by 15 per cent in the last financial year as performances suffered on the pitch. This is, after all, a 134-year-old ‘emerging high growth company’ that grew not a jot last year, and just 14 per cent over the past three.
“It could be challenging to justify such strong multiples for a company that needs to spend a lot of money to generate success,” Ken Perkins, an analyst with Morningstar told Reuters on Tuesday. “Even if their performance is good their price may be a bit high.”
“Shareholders are getting a shoddy deal,” echoed United-supporting Michael Jarman, chief equity strategist at H2O Markets. “Investors are not idiots and there is simply no value in the company. The Glazers want to have their cake and eat it – the share structure shows they want to retain complete and utter control.”
There was little to cheer for investors in preliminary financials released by the club in its updated prospectus, with United’s bean-counters estimating a fall in revenues of around five per cent, and a substantial drop in EBITDA – ‘cash profits’. Meanwhile, costs continue to rise, which when taken in aggregate with exceptional items like a hefty tax credit and the £7.7 million costs of issuing the IPO, will create a paper loss for the business in the financial year just closed.
No wonder the family was so keen to prematurely announce its deal with GM, with many supporters wondering whether the auto-maker is pre-paying part of the sponsorship package as AON did two years ago. The Glazers’ apparent desperation for quick cash at the club’s expense suggests this is highly likely to be the case.
No matter how lucrative the deal, front-loading payments will reduce United’s ongoing income at a later date, potentially cheating investors down-the-line.
Whether full details emerge in time is questionable. After all documents revealed that the Glazers registered United in the super-secret Cayman Islands on 30 April – the day City beat the Reds at Eastlands. And the question now on many supporters’ lips is whether Ferguson is one of the beneficiaries in a controversial share option scheme that will net some tens of millions, and the club absolutely nothing.
Fergie and Glazers’ profit from IPO leaves fans angry
(78 posts) (11 voices)-
Posted 9 months ago #
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Damian Garside
Member
Posted by unregistered user: Damian GarsideThis is getting really sordid: venality pure and simple unbridled and unashamed. Now the man who did so much seems to want to take so much. Pity we can’t get him to give back that knighthood if he wants to show himself manifestly unworthy of it.
Posted 9 months ago # -
ja
Member Posted by unregistered user: jaDespite being Manchester born and bred, taken to watch the A and B teams at the Cliff by my grandad in the early 60s, saw the 64 Youth Cup winning team at Old Trafford, never has my decision to walk away in 2005 felt more vindicated. I just wish others were able to make that leap to sanity in the hope that one day the parasites sucking the lifeblood out of United go away.
Posted 9 months ago # -
bman
Member
The off-again on-again IPO announcements might well be related to the Chevrolet confusion. If the deal seemed to be going south, that would be a good reason to delay the IPO, but when it got sorted out the Glazers pressed ahead.
One interesting idea -- I wonder if the employees' equity program might include some of the playing staff. That might be a very interesting way to make our pay deals extremely competitive while also binding key players to the club long term. For example, if we signed (completely hypothetical) a big name player like Hazard, the club could offer him options each year that would be tied to him sticking to the club. Big companies use this all the time to incentivise people to stay with the company; it also means that the value of his options would be related to the team's performance, so it would have a sort of performance-related element built in. It's an interesting notion that would give us a huge competitive advantage, potentially.
Posted 9 months ago # -
colin
Member Posted by unregistered user: colinQuestion: In the prospectus it reads:
“We are selling 8,333,334 Class A ordinary shares and the selling shareholder named in this prospectus is selling 8,333,333 Class A ordinary shares.”
Is the “we” Manchester United plc and is the “selling shareholder” Red Football LLC?
Posted 9 months ago # -
bman
Member On reflection, I'm cautiously optimistic about the IPO getting a decent response from the market. The fact is that there is nowhere safe for wealthy people and institutions to park their money these days, but big football clubs seem to be fairly recession proof: their TV rights seem to increase like clockwork, and Utd in particular is showing decent revenue growth. So if nothing else it might be a relatively safe investment compared to just about everything else out there, with the potential for a big upside if the Glazers sell the club.
This might also be why Fergie's been openly talking about trying to sign big name players like RVP and Moura. The IPO's success depends on investors seeing Utd as (1) a powerful global brand (so star power on the pitch is needed) and (2) a relatively safe investment, so the club needs to show that it will continue to be competitive in footballing terms. If there's transfer window propaganda going on, I don't think it's the fans the club is worried about, it's investors. Signing one or two big stars plus the Chevrolet deal is the perfect set-up for the IPO.
I don't pretend to know too much about this stuff, but it seems to me like the IPO might be the best plausible outcome for the club at this moment in time. Realistically a benevolent sugar daddy is not going to come along any time soon. Infuriating as it is to watch the Glazers live it up off the back of the club, if the IPO is successful it is probably a decent improvement on the current situation.
Posted 9 months ago # -
colin
Member Posted by unregistered user: colinIt’s not so much about safety of the investment, but the initial pricing. Buying in at $16-$20 per share would value United at approximately 3B which is very generous. Given the high valuation, lack of dividend, and minimal voting rights, I’m not as optimistic.
Most are categorizing United stock as a “media company” and traditional media companies such as Zynga, Groupon, and Facebook are getting crushed right now.
Posted 9 months ago # -
colin – yes equity value of around £2bn and an implied enterprise value of £2.4 with the debt. 20 x multiple is a joke… that’s super fast growing tech company, which is doubling revenues every year. United nowhere nearing that…. metrics suggest a mature company seeking new revenue streams, which is exactly what United is. Most football clubs are ‘valued’ by Forbes at a 12 – 14x multiple. Even that might be generous.
As for safe investment – United has grown 14% in three years. At that rate of growth you’d be better putting your cash in government bonds and that’s just about the least risky investment there is.
Posted 9 months ago # -
dyson – and it’s an ‘opinion’ I’m allowed to express whether you like it or not. The question isn’t whether Ferguson will be a beneficiary to the share scheme, but why he wouldn’t as a key employee. And then whether his praise of the Glazer family is linked to this (probably) huge pay out.
Posted 9 months ago # -
Truth teller – oh I’m sorry, another who thinks that it’s not ok to express an opinion. It used to be that Glazer fans would try and make an argument in facts. Now it’s just insults.
Posted 9 months ago # -
Stevie D
Member Posted by unregistered user: Stevie DSafe bet eh? I remember people in the states saying Enron was a “sure thing” a few years ago, and Irish investors said the same with Anglo Irish Bank shares. And look what happened! Not that I’m saying United would collapse like Enron, but you never know! There is no safe bet on the equity markets.
I’m no expert either, but with no dividends, no voting rights, and very uncertain prospects of capital gains on these share….I can’t see there being much interest in the IPO.
In fact, with Fergie coming closer to the end of his tenure all the time, the future success of United on the pitch could be viewed as less certain than ever. Does that make any capital gains look on these shares look even more uncertain? I would say yes.
Well that’s my tuppence worth anyway.Posted 9 months ago # -
dyson x
Member Posted by unregistered user: dyson xWe are all allowed one. I for one would love to see the Glazers sell up and run for the hills, but i dont see that happening just yet. until fergie retires im sure he is just keeping peace for the good of the club. Maybe i am naive but i think he deserves some respect?
Posted 9 months ago # -
bman
Member Ed said:
As for safe investment – United has grown 14% in three years. At that rate of growth you’d be better putting your cash in government bonds and that’s just about the least risky investment there is.14% a year is a terrific return, you'd have to be buying dodgy as fuck bonds to get close to that. Safer bonds, like t-bills, are currently running an appreciable amount below inflation, which means you'd be paying the US government for the privilege of them taking your money. The big question is whether the offer price in the IPO is right, if so I think it will be fairly successful.
Posted 9 months ago # -
Andrew – no sugar Daddies in this round. It doesn’t appeal to ego – no voting rights – and is only 10% of the club anyway. But sale is the exit. Eventually the Glazers go. If the IPO fails they go quicker.
Posted 9 months ago # -
bman – clear your cache. Either that or your ISP is caching.
Posted 9 months ago # -
Alfonso Bedoya
Moderator
Ed said:
bman – clear your cache. Either that or your ISP is caching.No, that's not it Ed... there are two versions of some threads.
For instance... with this article, there's this version...
Which bman is talking about...
and this one...
http://www.unitedrant.co.uk/latest/fergie-and-glazers-will-profit-from-ipo-to-leave-fans-angered/
which has the posts that he can't see...
It's the same for me... and it's like I have to create a second version of Alfonso Bedoya, if I want to reply in the other thread from this one... it's all very "twilight zone", with multiple dimensions...
"Badges, to god-damned hell with badges! We have no badges. In fact, we don't need badges. I don't have to show you any stinking badges, you god-damned cabrón and ching' tu madre! Come out from that shit-hole of yours. I have to speak to you."Posted 9 months ago # -
marlon
Member
Couple of questions - what is a 'share option'
And
-"Ferguson may be among those senior personnel selected to be part of the 2012 Equity Incentive Award Plan, which will be funded from the further sale of 16 million shares in the club." - Does that mean they sell more shares and give Fergie some cash, or do they just give him some shares? I also thought the IPO document said that after the IPO no shares could be sold for another 180 days, so how can this be a 2012 plan?Posted 9 months ago # -
bman
Member I see what you mean, Alf. If I go to the homepage and follow the link for this story under "latest", I see the whole thread, although I'm not logged in. But what I usually do is go to the forum, and look at the latest threads/comments, and I think that maybe when I do that I don't see any comments left by people who go the other way.
Posted 9 months ago # -
Stevie D
Member Posted by unregistered user: Stevie DShare option – it is an option to take shares instead of cash. If you have a £1m share option, you can either take it in the form of £1m cash, or take £1m worth of shares instead of the cash at the current share price. It’s usually used as a bonus payment. So when you received the bonus, you can opt to take shares or cash, it’s your choice.
Either way, the shares are issued. So if you want the shares, you get them. If you want the cash, the said shares are sold on the open market, and you receive the proceeds. So the £1m cash would come from the sale of the shares, not from the clubs bank account. This is how it differs to a normal cash bonus.
I hope I have not confused you.Posted 9 months ago # -
marlon
Member Thanks, very helpful - I assume that circumvents the whole no share sales for 180 days thing then. Also, that is a ridiculous bonus, by any standards, no matter what they have achieved - anyone know how many employees are in line to share this?
Despite Fergie being a bit of a dick recently, it's nice to think someone so tied to the history/success of our club could own a chunk.
Posted 9 months ago # -
bman
Member Commenter said:
Share option – it is an option to take shares instead of cash. If you have a £1m share option, you can either take it in the form of £1m cash, or take £1m worth of shares instead of the cash at the current share price. It’s usually used as a bonus payment. So when you received the bonus, you can opt to take shares or cash, it’s your choice.
Either way, the shares are issued. So if you want the shares, you get them. If you want the cash, the said shares are sold on the open market, and you receive the proceeds. So the £1m cash would come from the sale of the shares, not from the clubs bank account. This is how it differs to a normal cash bonus.
I hope I have not confused you.That's not correct. An "option" is when you are given the opportunity to buy shares at a future date at a specified price. Usually the specified price is the current share price or thereabouts, therefore if the share price increases by the time your option vests, you've made money. Alternatively if the share price goes down, your options are fairly useless. Therefore options are usually only compelling forms of compensation to employees if there is a general expectation that the share price will go up, or in the case of start-up companies the possibility that if the company succeeds, then the options will be worth loads of money, far more than a small company could hope to pay in cash.
So say when the IPO happens, Fergie might be given options along these lines: he'll have the option to buy one million shares at $20 (i.e. the supposed share price on day 1) on 1 July next year, the option to buy another million at $20 (or a different price) on 1 July 2014, etc. Therefore, in theory Fergie has a financial incentive to make sure the team does well, thereby increasing the share value by this time next year. If we won the CL and the PL next season, maybe the share price would be worth $30 on 1 July 2013. That means Fergie would make $10 per share, for $10 million total if he exercised all his options. Obviously things get more complicated than that, but that's the basic theory. You often see news stories where some company has hired a new CEO, and his got however many options than will vest in 5 years time or 10 years time. Therefore if he manages to increase the company's share value, he'll make a killing. It's also a way of making (supposedly) valuable talent stay with you -- if the new hire has a lot of options that vest in 10 years, he's got a major incentive to stick around for at least ten years.
This is why I am wondering if we might not see the club experiment with options to sign and retain key players. The next time Rooney negotiates a contract, the club could often him a certain amount of options at the end of every season for (hypothetically) 10 seasons. Perhaps the amount of options might even be linked to his performance, such as the amount of goals he scores, games he plays etc. Therefore in theory this could be a way for the club to compete with the likes of City and Chelsea who offer huge cash salaries to their players, and it would also help hold onto key players and cut down on the flirting with other clubs bollocks in the last 2 years of a contract.
Although the short-term appeal of options for players would be competing with City on the cheap, long-term it might be interesting for the club, as you might gradually end up with a fair few former players and managers with an ownership stake in the club.
Posted 9 months ago # -
marlon
Member That makes more sense. So Fergie could still make loads of money but not the payout it seemed - the general consensus is that the shares are overpriced so value could go down. My outrage at Fergie taking a huge payout has diminished a bit.
I like your idea - makes more sense giving them options than Fergie - he'll come/go as he pleases.
Posted 9 months ago #
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