Glazers to pay down debt? Believe it when you see it
There is something rotten in the republic of mancunia when national journalists buy, with seemingly little attempt at corroboration, the Glazer family’s ample spin on the upcoming Manchester United IPO in Singapore. Indeed, the Times and Telegraph each published heart-warming tales of the family seeking to pay down the club’s £500 million corporate debt and invest heavily in the transfer market post IPO. Finally, claimed Mark Ogden in the Telegraph, the Glazers have come to understand the fans’ concerns. It’s a touching story of the Tampa-based family reaching across the water towards hither to embattled supporters.
Believe not a word of it. History and good sense educates that the family’s intentions are likely far less benevolent, with the Glazers almost certain to use proceeds from the Asian flotation to shore up their own precarious financial position. After all, with a £250 million loan almost certainly taken from a US-based hedge fund last year and a financially unstable US property business to reinforce, the Glazer family could use every penny going.
The overnight spin came, presumably, from London-based Chief of Staff Ed Woodward, who has become a familiar if anonymous source to Fleet Street’s finest in recent years. The briefings followed United’s submission to the Singaporean Stock Exchange (SGX) of preliminary listing papers. That submission, reports conclude, appends a promise to cut net debt at Old Trafford; something that is directly tied into a ‘fair’ valuation for the club on listing.
True, if the club is to attract the premium price early noises have suggested – anything from £400 to £600 million according to the BBC – then United’s finances are of direct concern. After all, Asian investors will be offered no more than a third of the Glazers’ equity in United, if that. The promise of long-term profits, capital gains on shareholdings and a healthy dividend are, therefore, preeminent to minority investors with no control over United’s business plan.
Yet, as the Manchester United Supporters Trust (MUST) warned on Thursday, any supporter, institution or interested third-party investor should take the family’s spin with a large pinch of salt. Lest we forget, it was the Americans’ leveraged buyout six years ago that placed so much debt on the club in the first place.
“While on the surface, fans should welcome any reduction in the unsustainable debt burden on the club, if this Eastern promise from the Glazers seems too good to be true, it’s because it probably is,” concluded MUST in a statement on Thursday.
“The share sale will be in the Glazers’ interests – to pay down their debt – not the club’s. What we wish to see is a full sale to progressive owners who are interested in investing in the club’s future so we can compete with Europe’s finest, currently Barcelona. Ultimately, our ambition is for shared fan ownership of a better United.
“The danger is that a partial flotation will provide a poisoned pill to any such progressive potential owners. And by reducing the Glazers’ personal debt we will continue to be saddled with these absentee landlords. To any United fans considering buying shares at the Glazers’ initial offer price – buyer beware.”
That Glazer-held debt, gained when refinancing the exorbitant Payment in Kind (PIK) loans last year, is of course the primary driver for the upcoming flotation, which the family hopes will take place some time before the turn of the year. Within the bounds of whatever promises the family has made to SGX, supporters should expect the minimum possible bond buyback. The Glazer family is a long-term proponent of running their businesses with debt and leopards rarely change their financial spots.
It begs the question: what then the true cost to United of relisting? After all United will almost certainly issue dividends to both the Glazer family and minority shareholders post-IPO. In the worse case scenario, with less than half of United’s £500 million bond bought back from IPO proceeds and a dividend payable to shareholders, the annual cost to the club may conceivably exceed the £45 million currently paid in bond interest.
Lower debt also raises the spectre of Corporation Tax, which the Glazer family has studiously avoided over the past six years, with the club reporting repeated annual losses. This, of course, was not the case pre-2005, with the old PLC regime reporting profits and paying dividends that in aggregate totaled £61.74 million between 1991 and 2005.
Relisting United enables the club to more easily access the capital markets, of course, with future rights issues enabling the Glazer family to extract more value from its shareholdings. Should the Americans remain at Old Trafford post 2017, when the bonds mature, whatever is left of the club’s debt must be redeemed necessitating one assumes a further share issue to the market.
Yet there is no guarantee United’s shares will perform on SGX, assuming the Glazer family successfully IPOs this autumn. Even if the Glazer family, backed by underwriters Credit Suisse and others, achieves the speculated four billion dollar valuation the open market will surely provide a correction. The realistic scenario that United’s shares are overpriced on IPO and fall rapidly on the market will restrict the family’s ability to extract further liquidity when required.
Much of this is of course speculation and further detail is likely only when the club issues a prospectus in the coming weeks. But there is a lesson in history; one that supporters should heed before buying into the debt-repayment fairytale. It is a shame that our nation’s media is not so circumspect.