Glazer IPO unlikely to offer fans major stake

June 14, 2011 Tags: , , , Opinion 10 comments

The weekend’s Times newspaper report that the Glazer family is considering floating Manchester on the Hong Kong stock exchange raises the possibility, for the first time since 2005, that supporters could claim a stake in the heavily indebted club. It’s a goal that groups such as the Manchester United Supporters Trust (MUST) have been working towards for the past six years.

The family is considering listing on the Hang Seng and not in London, reports the Times, because a potentially higher price could be achieved. Hong Kong has experienced strong growth in the past 12 months, while the recent and upcoming IPOs of Western companies Samsonite and Prada are generally considered a success.

“Bankers have told the Florida-based tycoons that the listing could value the club at £1.7 billion — more than double the £790m the Glazers paid for it in 2005,” claimed the Sunday Times report.

“A recent flurry of floats on the Hong Kong stock exchange by upmarket consumer goods companies such as the luggage firm Samsonite, has prompted the family to consider a listing. Thanks to the international power of United’s brand, and the strength of its following in Asia, advisers believe the club could attract a higher price for its shares in Hong Kong than in London.”

However, if the mooted Asian IPO actually goes ahead it will surely leave United supporters with a tiny minority stake as global financial powers hoover up most of United’s assets. The rumour leaves fans wondering what next for a club that has seen significant financial unrest in recent years.

Indeed, the Glazer family’s decision to refinance existing bank debt with a £500 million bond in January 2010 exposed United’s finances in detail for the first time in five years, sparking a wave of supporter protest that has ultimately proven fruitless in producing regime change.

And while the so-called Red Knights came and went the Glazer family has reorganised the club’s finances away from prying eyes; a £220 million Payment in Kind loan was probably refinanced somewhere in the depths of Delaware last November, while the family has also spent £30 million of club money buying back bond debt in the past two quarters.

Yet to realise a profitable exit the Glazer family must either sell out to a private investor or float. With the Americans reportedly turning away offers from the Red Knights and the Qatari Royal family an IPO could be a viable out.

MUST reacted with circumspection to talk of a floatation, with the opportunity it brings for greater supporter ownership in the club. While ordinary fans owned a tiny percentage of the club on takeover in 2005, there were at least thousands of individual shareholders.

“If this report proves to be well founded the prospect of a flotation of Manchester United is one that many supporters would cautiously welcome because it could be an opportunity for supporters to once again share in ownership of their club,” said the organisation in a statement.

“However three immediate concerns spring to mind. Firstly that this would have to be a full IPO signalling a clean exit for the Glazers. Secondly the valuation would have to be realistic – something closer to £1 billion rather than the £1.5 billion that the Glazers seem to feel is possible. Thirdly shares should be freely available to all MUFC supporters and certainly floated on the UK market to maximise accessibility.

“MUST’s avowed aim is Manchester United FC owned by the fans and run for the fans. Our task is to create the opportunity for all United fans to share in the ownership of their club.”

However, MUST’s conditions seem unlikely to be met, with the price now seemingly much higher than £1 billion. Indeed, at a 12-15 EBITDA multiple that is typically used by the Forbes Magazine’s annual football club valuation list United’s sale price could reach £1.5 billion on the open market. Clearly, the Glazer family believes United’s international profile will equate to hundreds of millions in ‘brand value’.

The high valuation may also negate MUST’s desire for widespread supporter ownership. After all, the organisation’s growth to more than 172,000 members is impressive but is unlikely to create a huge pool of finance from which to carve out a meaningful stake in the club. Should each member, for example, find £1,000 to buy shares in an IPO MUST members would own a little more than 10 per cent of the club. Buying individually, even a 10 per cent holding is probably an unobtainable goal should fans be able to reach a Hong Kong listing at all.

Meanwhile, United’s management continues to look at ways to increase revenues and cut-back costs, according to a Bloomberg report on Monday. Bloomberg quotes an unnamed source close to London-based club COO Edward Woodward, who has been leaving the drive towards global commercialisation over the past two years.

“Woodward, a former banker with J.P. Morgan Chase & Co., has discussed several ways to cut financing costs,” reports the newswire.

“The club isn’t concerned about its finances, but wants to ensure it has the most efficient funding policy. It’s not close to making any definitive decision about changing its current terms.”

Bloomberg says that United will look to invest any savings in the transfer market – a proposition fans will take more seriously if the club makes good on an oft-purported spending spree this summer. After all, the Reds currently spends around £45 million per season in bond interest payments, separate from any costs associated with the refinance PIK loans.

Costs and interest associated with the Glazer regime has sucked more than £300 million out of the club over the past six years. Whether an IPO will cut net debt is as yet undetermined and probably moot. After all, the Glazer regime’s history tells us that value maximisation is the goal.


Tugger & Proud - June 14, 2011 Reply

They ain’t going anywhere, we may not like these bastards, but they are no mugs unfortunately. I’d float in Asia tomorrow if I was them

MrKirie - June 14, 2011 Reply

I wont pretend to know jack about finances and stocks and all, but if the club is valued at 1.5 billion, could they sell 49%, use the money to wipe the debt and remain owners, or is floatation the equivalent of a full sale?

Alfonso Bedoya - June 14, 2011 Reply

The Glazers… ffs… where’s the “Rennies”?

bman - June 14, 2011 Reply

Blog Commenter said:
I wont pretend to know jack about finances and stocks and all, but if the club is valued at 1.5 billion, could they sell 49%, use the money to wipe the debt and remain owners, or is floatation the equivalent of a full sale?

If this does happen, which is a big “if”, I’d imagine they’d sell a lot less than a 49% share of the club, probably more like 10-20%.

What I don’t understand is, if the club now owns a good portion of its own bonds, what does that mean for the interest payments? Are a share of the interest payments just coming back to the club, or is that share of the interest payments effectively going to the Glazers?

shauno - June 15, 2011 Reply

Be “interesting” to see what http://andersred.blogspot.com/ makes of it?

Geno - June 16, 2011 Reply

The Prada and Samsonite IPOs are not encountering strong demand. Unless the broader equities market turns strongly updwards between now and any IPO process for MUFC, the Glazers can forget about getting top dollar.

squigs - June 16, 2011 Reply

I would eat my hat if any IPO values United at 1.7 Billion or over.

The Forbes valuations are overly rosy, and valuations that are unlikely to be realised in the market. The main tool they use for valuation is the past transaction (What the club was bought for) + current stadium and land valuation. Owners previously have overpaid for clubs and the stadium and land is not really a liquid asset, United are not going to move stadium if a better deal was on offer.

Valuing a football club with EBITA is fine in most industries, but in football this leads to valuing the club before any transfers in or out and interest payments these are often the most important figures and this is leading to false valuations.

The lists are popular and attract huge readership figures but should not be taken seriously in my opinion.

squigs - June 16, 2011 Reply

If you overpay for the club, the club is going to remain overvalued effectively. Glazers bought at top of the market.

Tom Addison - June 18, 2011 Reply

Hmmm, a massively complicated issue. In general, companies go for a listing if they can’t raise sufficient finance using other means, such as loans from the bank or issuing debt, or maybe those sources of finance come with too many covenants attached or something.

For me the big problem is having shareholders who are investors. In theory, the primary objective of a listed firm is to maximise their shareholders wealth, and this is done by maximising the present value of future cash flows (i.e, investing in the best projects). This is incredibly complicated for football due to the information asymmentry and mass uncertainty exists. I doubt that there are many investment appraisal techniques out there that can determine which out of investing £30m in Modric or £30m in Sneijder will produce the best return.

Oh, and in terms of maximising wealth, institutional shareholders will probably want to see ticket prices raised so that revenue is maximised. Brilliant.

Then, of course, the shareholders will want dividends to compensate for their risk, and such dividends tend to be consistent despite profit levels. If I were a shareholder with a motive for fan ownership though rather than profit, I wouldn’t expect a dividend, I’d just want my club to be run in a morally respectful way. This proposed floating has nothing about fan ownership in mind.

Regarding the valuation of the club, well, we’ll have to see what the market values it at. You can’t use the historic value of the clubs assets per the accounts because that information is too historical, and you can’t use the “fair value” of the clubs assets because there is so much intangible value.

Either way, the Glazer’s being the Glazer’s, the primary motive behind any issue will be making as much money for them as possible, and that’s it.

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