Liar liar Gill’s on fire as market pours cold water on IPO
There was something vaguely sickening about the spectacle as Manchester United’s chief executive David Gill, adorned by two grinning Glazer brothers, rang the opening bell at the New York Stock Exchange this afternoon. Brothers-in-arms to a less than noble cause: the continued fattening of the Glazer wallet at United’s expense.
Indeed, the sight of Gill lauding it up Wall Street this Friday, in all its Faustian ignomy, brought only renewed anger from United supporters critical of the Glazer family’s highly geared ownership. Not least because the 55-year-old executive repeatedly spun utterly shameless, yet habitual, lines about the Glazer family’s impact on United during the day. In a media war, amid a disappointing listing for the Glazer family, Gill remains cognisant of unremitting and disingenuous positivity.
Yet, even as the Glazers’ stock offer fell flat – pricing below lofty expectations, with an underwriter forced to prop up a share price at risk of being dragged down by traders – Gill managed to spin familiar themes. The man who once claimed debt is the road to ruin, now beholden to its devilish charms.
It was, of course, never going to be any different, with Gill long since tied to the Glazer family’s odious abuse of a previously debt-free 134-year-old institution. Even to the laughable extent that Gill claimed he “doesn’t know” whether he will financially benefit from the Glazers now infamous ‘2012 Equity Incentive Award Plan’. Alongside manager Sir Alex Ferguson, who forcefully denied being a beneficiary of the scheme, there is no closer confident to the Glazer regime than Gill.
Yet, on a day as significant as any in the club’s history, shares traded at or around the $14 pricing point all day – way below the $16-$20 the Glazer family had sought – but above, for now, the low-point many analysts have predicted. But with high-frequency traders taking pennies on small trades Friday afternoon the lead underwriter, Jefferies, was forced to make a series of large share purchases at the pricing point to save corporate face. Further drama is surely yet to come.
Gill continued the well-worn pitch though; that United’s is a growth story and that the Glazer family’s debt-fuelled business model has no impact on Ferguson’s team. Few supporters, bar those of Sir Alex’ “real fan” camp, believe any of it. Almost all professional investors shunned an IPO that offers little financial upside.
And despite raising around $100 million less than previous expectations, Gill remained positive on sunny day in Manhatten.
“We’re the biggest sports business in the world,” bragged Gill on CNBC television Friday morning.
“I think you’re buying into one of the world’s iconic brands, playing in the fastest-growing sport in the world. We can demonstrate across all our revenue streams great growth opportunities.”
Shame, then, for Gill’s threadbare credibility that United will post a loss on falling revenues when accounts to June 2012 are published. As ever under the Glazer family’s ownership, United continues to sprint commercially, only to head rapidly backwards on the altar of debt.
And it is this debt, together with the American family’s decision to cash in on the IPO rather than reduce an onerous burden on the club, which continues to anger supporters. With just $233 million raised from the New York listing, barely £65 million will be removed from United’s £427 million debt pile. In fact the IPO will have such little effect on interest paid, says analyst Andy Green, that it will take United two years to break even on the offering’s $12 million costs.
“Roughly 65 million to 60 million will come off the debt level,” Gill claimed.
“I think it’s important to note that even at the prior debt levels we were comfortable they weren’t impinging with what we were doing from a football perspective. The level of debt in the club since they have taken over hasn’t had an impact on what we have done in the team. We fully understand, and the owners fully understand, that what happens on the pitch is crucial and we will make sure that we have sufficient funds to invest in the team going forward.”
Many supporters will question whether the £20-25 million annual net spend in the transfer market promised to investors during United’s pre-IPO roadshow is “sufficient” in a market where Manchester City, Chelsea and now Paris Saint German repeatedly outbid United’s highly constrained financial operation. It is, of course, well below the £100 million ‘cash profits’ the club makes before debt takes its hold.
No wonder then that the Manchester United Supporters Trust (MUST), which has called for a boycott of the club’s commercial sponsors, damned a failing IPO.
“As it stands the club is valued at around one-third less than their expectations but many commentators expect the price to slide over the next two weeks,” said MUST chief executive Duncan Drasdo.
“We maintain this IPO will be bad for investors, not just the club and its fans, and we’re confident time will show that to be true. We remain totally committed to fighting for fan ownership.”
Indeed, highly critical media coverage in the lead-up to Thursday’s pricing, swayed by pessimistic analyst prognosis, is likely to have steered the investment community away from United’s listing. The smart money ran from the Glazer family’s opaque pitch, although local fan-driven demand may have ensured a full book at a significantly reduced price.
Still, the Glazers’ lieutenants continued to boast of strong demand in the face of all evidence, with vice chairman Edward Woodward claiming a successful investor tour had driven demand. And he did it with a straight face too.
“The understanding that U.S. investors have around sports business, given it’s the most developed sport market in the world, has been a benefit,” Woodward told Bloomberg.
“We had a fantastic response from the investor base in the U.S. We found that a number of people came in with a strong level of interest, which was tweaked higher when they heard our story. It’s very easy for people in the U.S. to grasp the huge opportunities around merchandising and digital media.”
The roadshow is now over, of course, and on open trading many analysts expect the market to correct a $14 price that values United at around $2.3 billion – £1.5 billion – or more than 19 times earnings before tax and other deductions. It is a multiple more commonly found among high-growth technology companies, not hundred year-old institutions growing at just seven per cent per annum.
Yet, this is unlikely to be the final story, with the Glazer family remaining entrenched at Old Trafford, slowly milking the club for their own financial gain. The “six lineal descendants” of Malcolm Glazer walk away from the offering, no matter how limp, with voting power untouched, and $110 million in the family bank account.
There may be more to stock issued in the future too, with reports that the family’s failing US business empire has caused meaningful financial strain. There remains significant room for the family to sweat the asset further, having sold just 10 per cent of shares to date. As ever, keeping just one step ahead of the banks is the family’s primary goal; United’s health only a passing concern.
Whether the IPO is the first step in the Glazers’ exit from the club remains moot, with the family likely to sell up when maximum value has been reached. Yet, the family’s decision to list rather sell to Qatar or other interested parties in 2010 – somewhat ironically the Qatari’s reportedly bid £1.5 billion for the club – means price is at the vagaries of the open market.
And with United’s share price marginally down in the final hours of opening day trading its a capricious market that no volume of Gill spin, or Glazer engineering, will buck.