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.

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  • LexxytheNigerianRed

    ARE YOU CRITICIZING RoM OR WHAT. IS IT A CRIME TO REPORT WHAT THE DAILIES WRITE?

    • http://www.unitedrant.co.uk/forum/profile/admin Ed

      Lexxy – what are you on about? Nothing to do with the website… take note of the spelling! FFS

  • LexxytheNigerianRed

    really sorry , it was indeed a mix up…. am sorry. am a die hard scot fan and that’s why i overreacted a bit. i hope all is forgiven

  • http://Forbes John Ellis

    See Forbes’ view of the IPO

    Manchester United’s IPO will value the English soccer club north of $2.4 billion and significantly widen its lead over the Dallas Cowboys and New York Yankees as the most valuable team in the world.

    In May, 2005 the Glazer family took control of the Red Devils at a price that placed an enterprise value on the club of $1.4 billion, or 19 times forward 12-month operating income (earnings before interest, taxes, depreciation and amortization) of $74 million.During the next 12 months Manchester United’s operating income should be at least $165 million (assuming current exchange rates), according to sources familiar with the club’s finances.

    The stock market is not as richly priced today as it was six years ago. And selling a minority stake in the Red Devils, as the Glazers are expected to, would not command as high a multiple as floating a controlling interest. But even if you apply a multiple of just 15 to Manchester United’s forward operating income, as some bankers suggest, the soccer club would get a valuation north of $2.4 billion.

    If my math is correct, the value of Manchester United will have increased by $1 billion, or 71%, during the six years the Glazer family has controlled the club, making their acquisition of the Red Devils one the most successful leveraged buyouts over the past decade I can recall.

  • dws

    Very good article Ed, in a separate post I have condemned the glazers wholeheartedly. There is a moment of truth with MUST and our very own Anders, I hope when we see how much the scumbag Glazers want for this MINORITY stake then our friends will come out blazin with maximum anti glazer publicity both here and particularly in Asia. I am too old to be on Facebook! surely amongst all Utd fans who HATE the glazers we can get a movement going all over the world to highlight what cunts they are?

  • ichiro

    Wondering if the board make-up which is very Glazer-heavy, will change as a result of the listing.

    • http://www.unitedrant.co.uk/forum/profile/admin Ed

      ichiro – It’ll likely only happen if one investor gets more than 10%. In which case that investor will also need to go through the Premier League fit and proper persons test too.

  • Alfonso Bedoya

    I just got my latest “info@joinmust.org”, update… like I suppose many others here… and I was just wondering what you make of it Ed…
    Is this really a victory for “must” and “G&G”, or are they just trying to take credit for a positive outcome?
    In fact, I’m not sure this is a positive outcome, but anyway…
    For anyone who doesn’t get these mails… here…
    “UNITED NEEDS YOU
    The confirmation of the MUFC Singapore IPO is a major victory for the Green & Gold campaign.
    The Glazers issued a bond prospectus in January 2010 and in so doing triggered the Green & Gold uprising. Green & Gold was a global phenomenon fought in the areas of media and politics as well as on the terraces. It was an uprising like nothing seen before at OT or perhaps anywhere in English football.
    The bonds actually created more expensive debt and more of it than the club’s previous bank financing, however crucially they allowed the Glazers to take up to £95m in a cash “carve out” from MUFC’s coffers with much more to come over subsequent years. There was no other good reason to swap the bond debt for the previous cheaper bank debt.
    So while the bonds were more expensive the Glazers desperately needed the money – their PIK debt was rolling up at an alarming rate and threatening to get out of control and there was no other spare cash in the empire.
    Such was impact of Green & Gold throughout 2010 however, that the Glazers feared an outright rebellion and had to withdraw their plans to take the carve out money.
    At meetings on 8th October 2010 between Uniteds’ Chief of Staff, Ed Woodward and the various PIK holders when questions as to why they hadn’t taken the carve out to pay down part of the PIK debt Woodward confirmed that they weren’t taking it for fear of fan rebellion. This was confirmed by two sources including one of the actual PIK holders who was present at one of the meetings – this was reported by Bloomberg at the time. http://bit.ly/glazersfearbacklash
    So the PIK problem remained for the Glazers but the Green & Gold had saved United at least £95m. A huge victory for the football club by any measure but of course the danger remained that they would just wait for the protest to die down before taking the money.
    As it became clear the Glazers had decided not to raid the club’s coffers, Green & Gold protest dropped from its spectacular peak, but it refused to go away and was actually stronger at the end of 2010-11 season than it had been at the start. Clearly it continued to simmer under the surface and so the Glazers had to look at Plan B.
    First they needed to get the PIKs out of the spotlight as these had been a catalyst for protest.
    The PIKs were suddenly and without explanation “paid up” in November 2010 at a cost of £249m.
    One option was of course to sell outright, but despite well publicised interest from Qatar and other sources, no-one was prepared to pay the outlandish price they were putting on the club.
    That left only one realistic option – they’d need to sell part of their holding in the club to deal with their debt problems and so Plan B came into play with the Singapore float.
    But their debt is still on our club. This is the same debt that David Gill continuously told us was not a problem and not affecting our ability to compete.
    So from a position last year where the club could have lost more than £95m with much more to follow and the Glazers still in 100% control we now see the possibility of them conceding total control – opening the club up to financial scrutiny and indeed perhaps to shared ownership with supporters and paying down at least part of the bond debt.
    Provided the valuation is sensible the IPO is a major opportunity to raise funds so it should be used first to clear the debt the Glazers put on our club before they help themselves to the proceeds. They’ve already cost our club hundreds of millions in interest and fees so the least they can do is pay their own debt. It is debt foisted on the club by them and they should be responsible for repaying it. It is crucial to recognise that the IPO is a watershed moment at which point the debt position is set in stone with no chance of the Glazers repaying a penny of it in future.
    All remaining debt after IPO will become the club’s responsibility forever more. Effectively at that point they will have taken that money from Manchester United meaning our club (and fans) will have to pay their debt off. So it is the duty of every fan to stand up to protect our club from further un-necessary fees and interest payments. What true fan of the club wouldn’t want to see the Glazers pay for their own debt rather than foisting it on the club. What could we do with that money in the transfer market or stadium development?”

    “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.”

    • http://www.unitedrant.co.uk/forum/profile/admin Ed

      Alfonso – Well there’s plenty of evidence that the Glazers have changed strategy. Selling 30% of their equity was never part of the original plan when the bond was drawn up, but the fan protest did change club policy. So in a way that’s a small victory for supporters. But the truth is the Glazers will become more entrenched as a result of the IPO and are unlikely to pay down the debt. It’ll be their debt first – all £250m of it – and then some bond buyback. But perhaps, just perhaps, a second wave of fan protest will pressure the Glazers into looking at the club first. Although I doubt it.

  • bman

    Ed said:
    Alfonso – Well there’s plenty of evidence that the Glazers have changed strategy. Selling 30% of their equity was never part of the original plan when the bond was drawn up, but the fan protest did change club policy. So in a way that’s a small victory for supporters. But the truth is the Glazers will become more entrenched as a result of the IPO and are unlikely to pay down the debt. It’ll be their debt first – all £250m of it – and then some bond buyback. But perhaps, just perhaps, a second wave of fan protest will pressure the Glazers into looking at the club first. Although I doubt it.

    Rubbish, G&G and MUST and all that shite has very little impact on the Glazers thinking. Might have helped keep ticket prices down, but no way it’s affected Glazers’ big picture thinking. As for saying “never part of the original plan”, how the fuck do you know? It was always a possibility, I predicted the Glazers would do this years ago on this board or one of its predecessors, it was always an option on the table.

    Also, if they say in their prospectus they are going to use the funds raised to pay off debt, then they have to do that, assuming Singapore’s stock market works like most anywhere else.

    Let’s face it, the militant anti-Glazer crowd have been 100% wrong in their predictions about what the Glazers will do for years. I’ve no love at all for the Glazers, but I’m tired of a bunch of more-legit-than-you fans saying A, then claiming they’re somehow proven right when B happens and getting righteous with everyone else.

    Anyway, I don’t think the end result of this if it goes ahead is bad for the club, good for Glazers, but not so bad that we need to panic. I think the worst damage is to the soul of the club rather than any practical day-to-day impact.

  • Alfonso Bedoya

    bman said:
    Let’s face it, the militant anti-Glazer crowd have been 100% wrong in their predictions about what the Glazers will do for years.

    Is that right?
    The general fear was that, they would raise the price of everything to pay for their borrowing… and that they would take huge chunks of revenue away from the club for their own purposes…
    Seems about right to me…
    And it’s very reasonable to argue that we haven’t spent as normal, in the transfer market either.

  • Alfonso Bedoya

    bman said:
    Let’s face it, the militant anti-Glazer crowd have been 100% wrong in their predictions about what the Glazers will do for years.

    Is that right?
    The general fear was that, they would raise the price of everything to pay for their borrowing… and that they would take huge chunks of revenue away from the club for their own purposes…
    Seems about right to me…
    And it’s very reasonable to argue that we haven’t spent as normal, in the transfer market either.
    Stop talking shit!

    “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.”

  • http://damiangarside.com Damian Garside

    It must have come as a profound shock to the Glazers when Al Mansour become the owner of Man City and placed unlimited resources at the club’s disposal (restrained only by the Fifa club finances ruling). Neverheless, before City got lucky and very rich, the Glazers would have been OK with modest spending on the team (or very modest spending) as long as we were in with a shout in the PL and did OK in Europe (quarterfinal exit or better). That would have meant the club was maintaining a particular stand acceptable to the fans with modest outlay on new players, mainly young where the risk is less and the potential rewards immense (and thus the `value’ mantra). The plan could be long term, that five years of reasonable success could be a few years of exceptional success based on the maturing of some exceptional young talent.

    But when City are building an exceptional team and squad made of of the cream of world footballers (more Aguero type players into the mix every year) and already look like they could run us close this year (and who knows what next year) then our concerns start to become more immediate ones. And we start comparing the largesse of City’s owner with the penny-pinching (if that’s the word for 95 million squid put into own pockets to offset losses elsewhere in the Empire (you are free to add your own epithet in fornt of this word. So the 98 million = the 80 million we got paid by Real for Ronaldo plus some serious change, or, it is the moneys City paid for Aguero plus Nasri plus a bit more change. My prediction for the season: if City win the PL and we don’t win anything, then forget the green and gold, OT is going to get seriously red as in `revolutionary’. The Americans who formerly owned Liverpool thought they had it rough. Trust me, this is nothing to what I expect will be heading the Glazers way if City start to overshadow us.

  • captainhormone

    gayish name…great post…agree with the majority of that

  • http://damiangarside.com Damian Garside

    Name not my fault but I’m cool with it. My wife is cool with it too.

    Thanks anyway for positive comment on the post. Could English football be entering a period of absolute dominance by the two Manchester clubs (fuelled by an even more insanely intense rivalry (and yet shared pride as red or blue Mancunians, or surrogate Mancunians), to be known to posterity as `the Manchester era’? Down side: a season where City wins a trophy more than we do. Upside: the reverse of the previous sentence, plus the irresistible decline of Liverpool, Arsenal, Chelsea …

  • uncleknobheadforfucksake

    chelsea won’t decline, 100m spent this year and soon modric

  • sidney

    We can’t get away with this midfield now

    Need more quality and experience

  • Damian Garside

    How come suddenly there are a host of French (and a Belgian) midfield player available for Arsene Wenger to consider as possible replacements of Nasri and Fabregas? I was led to believe that Nasri and Sneijder were our only options? How come we only consider players who for one reason or another aren’t going to come to OT?

  • Alfonso Bedoya

    uncleknobheadforfucksake said:
    chelsea won’t decline, 100m spent this year and soon modric

    Aye… and I think if he gets the time… AVB is going to prove a great appointment…

    “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.”

  • Alfonso Bedoya

    Commenter said:
    How come suddenly there are a host of French (and a Belgian) midfield player available for Arsene Wenger to consider as possible replacements of Nasri and Fabregas? I was led to believe that Nasri and Sneijder were our only options? How come we only consider players who for one reason or another aren’t going to come to OT?

    Never mind French/Belgian… I want German… Gotze and Frankensteiger…

    Yeah man… that’d do me.

  • sheesh

    Damien, that is a good post. City and Chelsea’s spending puts our own spending into light. Mancini’s taking the piss now, openly tapping up de Rossi and Modric to Chelsea looks inevitable.

    All in all, this is a shit situation. Why haven’t we signed a fucking midfielder?

  • bman

    Big articles from the Guardian on United’s expected financial results, upcoming IPO and all that stuff:

    http://www.guardian.co.uk/football/blog/2011/aug/30/manchester-united-glazers-singapore-exchange
    http://www.guardian.co.uk/football/2011/aug/30/manchester-united-record-operating-profits

    Short version is that we’re expected to announce record profits and all that, plus speculation about how IPO will work.