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.
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