Stock watch

February 7, 2014 Tags: , Opinion 6 comments
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It is a period of gloom for David Moyes’ Manchester United side on the pitch; and not much better than that for the Glazer family’s MANU stock in the capital markets. Trading at a dollar over the $14 IPO price on the New York Stock Exchange, United now boast a market capitalisation of just £1.5 billion; far shy of the family’s suspected asking price, and a long way short of the value the Americans might have hoped following the August 2012 flotation.

Indeed, watching United’s stock has become almost as fascinating as the football this season – not hard given the paucity of quality displayed by Moyes’ side for much of the past seven months. While the share price gradually rose after an initial sale of around 10 per cent of the club, the months following Sir Alex Ferguson’s retirement have proven to be far rockier for the Glazer family and their banking partners.

Or in other words: the market has shown little faith that United will remain as profitable in the coming year as it has in the past. And if anything should truly concern the manager when it comes to job security, it is a negative market reaction, and not solely poor results on the pitch.

Share ownership can be a long game in addition to the short, of course, which is why so many headlines in recent weeks have erred wide of the mark. The CEO’s imperative to meet next quarter’s targets is tempered by those buy-side analyst forecasts on just how much a company, or in this case a football club, is likely to grow in the medium term. The sentiment has remained neutral to only moderately bearish over the past six months despite increasingly disastrous results for Moyes’ side.

But growth does matter. That growth in United’s case is relevant on-the-pitch and principally in the auditors’ office. United’s stock neither carries dividends, nor the prospect of any decision making power, given the Glazers’ decision to retain some 97.5 per cent of all voting rights in a controversial two-tier share issue. It leaves investors with one upside alone: capital gain based on an intangible belief in solid future financial performance. That belief, it seems, has eroded since Moyes walked into Old Trafford last summer.

What the general downward trend in United’s share price – around 20 per cent off May’s peak of $19 – says most of all is that under-performance on the pitch could have a material impact off it, even if that is likely to be in a timeframe that measures in months, if not years. Believe not the misleading headlines; at least not just yet.

But watching the stock ticker bounce down, and only occasionally up, has a draw of its own for those whose minds whir with speculation about when the American family might up sticks and sell. They always sell when it comes to leveraged purchase.

Peaks of feverish activity – possibly coinciding with share-price supporting bulk purchases by the Glazers’ underwriters – come amid a more gradual abatement in value over these past months. Indeed, United’s value has fallen not just to the £1.5 billion market cap, but the club’s £280 million net debt means that an enterprise value is barely double that for which the Glazers paid a handsome premium back in 2005.

Or to put it another way, United’s price-to-earnings ratio – the measure of the share price relative to the annual net income – is now just a touch over 12.5; down significantly from the multiple of 40 the Glazers paid during the £790 million acquisition eight years ago.  Projecting forward, the P/E ratio shows current investor demand for the company; and wavering sentiment of anticipated earnings growth in the future.

Or to put this argument another way still, the family’s aggressive business model based on selling the club’s name to any company willing to pay for it, under-investing in the team, and fleecing supporters for the privilege of visiting Old Trafford, has created far less new value than the family’s spin machine might have supporters believe.


Still, United will report another record quarter when Q2 results are announced next Wednesday before the opening bell in New York. Ed Woodward is likely to face questions about how United’s anticipated failure to qualify for Europe squares with the growth story sold to investors 18 months ago. Revenue projection is broadly based on an assumption that Moyes’ team finishes no worse than third in the Premier League and reaches the Champions League quarter-finals.

The Scot’s outfit will miss at least one of those targets by some distance. Given United’s form there is no guarantee the Reds will beat Olympiakos over two legs in the coming weeks.

The financial blow of dropping out of the Champions League – estimated by analyst Andy Green to be anywhere between £30 and £45 million – may be compounded by the premium United will have to pay to attract high-quality talent next summer. After all, as has Liverpool found to its cost, Champions League football remains the barometer for all top class players, while Manchester City admitted to paying hugely inflated fees simply to qualify for the tournament in the first place.

With Rio Ferdinand, Nemanja Vidić, and Patrice Evra likely to be joined at the Old Trafford exit by Shinji Kagawa, Anderson and Nani, Moyes is going to need a substantial acquisition fund to strengthen a squad that has suffered this season. That is to say nothing of whether Wayne Rooney and Robin van Persie fancy playing in Europa League qualifying matches come late July.

Investors, whatever side of the pond, realise this is no time to erode profitability.

True, there are financial positives likely to mitigate the cost of no European football next season. Cheverlot’s new contract, a bumper television deal and a new kit deal will boost earnings, and as Ed Woodward has so proudly claimed, falling from Europe’s elite for a season or two is unlikely to harm United’s sponsor acquisition strategy.

Nor, it seems, will a hit on United’s share price drive the Glazers from Old Trafford. Not just yet at least; not until the family believes peak value for its ‘asset’ has been obtained. Given the stock price fluctuation since Sir Alex’ retirement last May, one might speculate that the time has already come and gone.

Liar liar Gill’s on fire as market pours cold water on IPO

August 10, 2012 Tags: , , Opinion 108 comments

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.

Reasons to be cheerful

August 8, 2012 Tags: , , Opinion 18 comments

Though last season’s climax will linger odiously in the minds of Manchester United fans, the summer which has followed is one easily forgotten. On the pitch, the absence of key players, due to international commitments at both the European Championships and Olympics, has seen United’s depleted squad score just three goals in five games against markedly inferior opposition, save for Barcelona.

Meanwhile, away from it, only moderate activity in the transfer window has left a midfield bereft of variety and depth, seemingly unimproved. Even speculation concerning the potential acquisition of Robin van Persie, the Premier League’s top scorer last term, has polarised opinion; such is the Dutchman’s inability to mask the team’s most deep-rooted deficiencies.

Arguably the most engrossing stories to emerge from Old Trafford relate to the Glazer family’s much maligned attempt to float part of the club on the New York Stock Exchange, while still pocketing more of the proceeds than will be devoted to reducing United’s insidious debt. Yet, despite the club’s recent anguish, and its future shrouded in doubt, there still remains scope for optimism.

This optimism begins with hope for desperately needed reform. The detrimental nature of the Glazers’ ownership was already well known, but renewed outrage in the face of their Initial Public Offering (IPO) in New York has reinvigorated opposition at a time when the family are looking more vulnerable than ever.

The family’s US-based businesses continue to haemorrhage money, while rumours of a rift within the family persist; the Sunday Times reported this week that of the six children to whom Malcolm has gifted control of United, three “want to sell their shares to concentrate on other ventures.” Even if tales of a family dispute prove untrue, the Glazers are still faced with the dilemma of somehow generating the capital necessary to prop up their failing businesses elsewhere.

Thus it appears the success of the proposed IPO, expected to be launched later this week, is fundamental to the Glazers’ continued ownership of United. Should it fail to deliver the cash injection hoped for, the Americans may well be forced to consider selling the club, or at least settle for relinquishing a much larger share of control.

And if the reports disseminated by a number of renowned forecasters are to be trusted, it is hardly inconceivable that the IPO will fail; the Financial Times damningly opined that the Glazers believe “investors are so credulous that they will hand over their money without being offered a financially persuasive argument or even the pretence of good corporate governance practice,” while analyst house Morningstar has valued potential shares at between $6 and $10 less than the amount targeted.

Though it is true that news ‘leaked’ from inside the club contradicts this position, anybody familiar with United’s increasingly lacklustre attempts to sell season tickets will rightly be sceptical when the world is told that the IPO is already oversubscribed.

The potential difficulty the Glazers face has not been lost on United fans, with the all-espousing Manchester United Supporters Trust (MUST) avidly vocalising its plans to test the family’s resolve. Having developed a reputation for being somewhat passive in its previous attempts to force the Glazers from Old Trafford, the group headed by Duncan Drasdo stepped up its efforts this week, as it facilitated the dispatch of over one million emails to potential backers of the IPO and club sponsors.

More significantly, MUST released a statement on Tuesday calling for the worldwide boycott of all products and services of those same sponsors. Though such an appeal is highly ambitious, with results unlikely to materialise, it is a step in the right direction; the only way United fans can gain leverage over the Glazers is to hurt the family’s revenue streams until they are forced to sell. This is a goal ordinary fans can only achieve collectively, through mass boycott.

Aided by Blue State Digital, the marketing firm used by Barrack Obama during his first electoral campaign, MUST now provides a figurehead more widely received than the fanzines and online forums that were previously alone in calling for belligerent action. If MUST’s growing global presence proves enough to intimidate the Glazers’ financial advocates and allies even slightly, it may be enough to stifle the IPO, forcing the hand of the Americans.

The infamous figure of 659 million supporters, touted at every possible opportunity in the build-up to floatation, is so significant because it is through these supporters that the club stands to generate revenue.

Should a scenario arise where the Glazers are not able to sell on their own terms, particularly if the catalyst for such a scenario was supporter action against the family, it is unimaginable that new investors would not seek to rebuild the broken relationship between the club’s fans and its owners. A model of the club whereby fan ownership is a realistic possibility may once again emerge.

Hit the road Malc

August 2, 2012 Tags: , Shorts 79 comments

Manchester United’s commercial team launched the club’s investor roadshow on Thursday ahead of an Initial Public Offering (IPO) in New York this August. The team, comprising chief strategist Edward Woodward, commercial director Richard Arnold, and operations head Michael Bollingbrook, is meeting potential investors in Asia, Europe and the US ahead to drum up interest in the flotation ahead of pricing next week.

In a performance of undoubted woodenness, total lack of charisma and no little bluster, the trio kicked off the tour that the Glazer family hopes will prompt investors to pump more than $300 million into club family coffers.

Key points:

  • The United team claim that revenue growth will come from retail and commercial sectors in the future
  • Bollingbroke repeatedly stresses that Financial Fair Play (FFP) will benefit the club – presumably concerned that UEFA’s flag-ship programme may not have teeth
  • Woodward says that deal with General Motors is “a world record” shirt sponsorship – it’s put at anywhere between £25 and £54 million per season by the press
  • Woodward says that commercial revenue could account for more than 50 per cent of total revenues inside three years – it is currently around 30 per cent
  • Bollingbrooke says historic net player expenditure over 10-15 years is £20-25 million – it is, of course, substantially lower during the Glazer regime
  • “We are giving guidance at the moment,” says Bolingbroke, “that the current transfer period could result in net expenditure nearer £40 million
  • “Matchday is our annuity business,” says Woodward – United not taking the fans for granted then. Much.

Steve Jobs it isn’t, but don’t take Rant’s word for it, view the video presentation and read the prospectus here.

American Lie

July 31, 2012 Tags: , Opinion 17 comments

Long long time ago, I can still remember, how the Stretford Paddock drove me wild
I knew that if I did my time, up those steps then I would climb and Busby’s love would hold me like a child
The ’85 start made me shiver, at those 10 games Fat Ron delivered
Then 91 through 2005, I’ve never felt so much alive
I don’t remember much about, the day our leaders sold us out
In Glazers trough they’ve stuck their snouts, of that there is no doubt

So fuck off little weasel dearest Malcolm bye bye
Trade our soul to get a Chevy as the debt was so high
Fergie’s sold us down the river, guess that makes him a twat
Hang on…. Real fans aren’t allowed to say that, real fans aren’t allowed to say that

Do you recall great goals from Spark, and chased at night through Stanley park (or soaking wet in Rotterdam)?
Your Grandad’s handed-down ST, replacing worthless LMTB, token sheets, pay on the gate
Well we know the richest club’s in shit, trading heritage for debt and PIKs
Net spending’s truly bizarre, disenfranchised that’s what we are
Our leader’s lapdogs say ‘you can’t say that’ (with their half-n-half scarves and jester’s hats)
But you’re the ones they thought about, the day they sold us out

So fuck off little weasel dearest Malcolm bye bye
Trade our soul to get a Chevy as the debt was so high
Fergie’s sold us down the river, guess that makes him a twat
Hang on…. real fans aren’t allowed to say that, real fans aren’t allowed to say that

I met a lad who watched the Blues, and I asked him for his derby views, he just laughed and walked away
I went back to the Stretford end, to find my bones they wouldn’t mend
And the steward said ‘what the fuck do you want you raggy arsed pariah?’
And on the networks the apologists screamed, the old guard cried, still the Glazers beamed
The Real Fans remain outspoken, their spirit’ll not be broken
And the greatest manager we’ve had throughout, who brought an end to the 25 year drought
He forgot his roots (of that, there’s no doubt), the day he sold us out

And we were singing…

So fuck off little weasel dearest Malcolm bye bye
Trade our soul to get a Chevy as the debt was so high
Fergie’s sold us down the river, guess that makes him a twat
Hang on…. Real fans aren’t allowed to say that, real fans aren’t allowed to say that

Fergie and Glazers’ profit from IPO leaves fans angry

July 31, 2012 Tags: , , Opinion 84 comments

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.

Three strikes and you’re out for Glazer IPO

July 26, 2012 Tags: , Opinion 68 comments

The Glazer family’s very long mooted Manchester United flotation may be off for a third time after the Financial Times confirmed that an initial public offering (IPO) planned for New York this summer is on “pause” for an undetermined period. Citing volatile market conditions, the FT says that the IPO may now not take place before the new football season kicks off in August. The Manchester United Supporters Trust (MUST) and blogger Andy Green claim the IPO is now ‘dead in the water’.

But after failing to get the listing away in both Hong Kong and Singapore, there is suspicion an age-old problem has risen its head: Glazer family greed, and an over-valuation of the club.

United executives had planned to hit the road this week, meeting investors in Europe and Asia, before heading to the States to sell the listing amid a rash of negative articles in the financial press on both sides of the pond. But referencing insider sources, the FT claims that the Glazers have been spooked by a downturn in market conditions and increased volatility this week.

“The pause comes as US markets have been unsettled by further concerns over debt and economic growth in the eurozone, with the S&P 500 index falling 2 per cent since the start of the week,” said the paper’s editorial on Wednesday.

“People familiar with United’s IPO plans suggested the current delay had to do with market conditions. The Vix index, a widely monitored measure of implied volatility on the US market, has risen by more than 23 per cent since Monday. Bankers consider a sudden rise in the Vix as a sign of potential risk aversion from investors, making them less likely to participate in new offerings.”

The delay means a valuation is unlikely to be set until mid-August at the earliest; the smart money suggests the listing is to be pulled in its current form.

This comes just days after reports emerged that the Glazer family was keen to list before the new football season begins, with Sir Alex Ferguson repeatedly wheeled out to the defend the Americans in the past week. The owners’ enthusiasm to avoid another round of ‘Green and Gold’ style protests at Old Trafford ahead of listing, and a seeming desperation to get the listing away, were perhaps behind the media blitzkrieg.

Yet, volatility and poor market conditions are excuses that will fool few, with the two per cent S&P index fall barely a blip in historical terms. Meanwhile, the Vix has been running at around 20 this week – far lower than in previous months this year. Indeed, the Vix – an aggregated market nervousness score amusingly dubbed the “fear index” – has jogged between 15 and 20 this month, but up to 48 in the past year, and at 80 during the widespread market panic in October 2008.

The pandemonium, if there is any, resides in the United boardroom, not the NYSE floor.

But if market conditions are not genuinely to blame for delay – temporary or permanent – then lack of institutional interest in the sale is almost certainly a factor. The family’s dual-class share structure, determination to pay no dividends, a market unfamiliar with UK sports ‘franchises’ and the aggressive valuation consistently demanded by the Glazers are all in play.

In fact, a consistent pattern has emerged in the past 18 months, with the family willing to sell at least part of the club, but unwilling to lower a £2 billion plus valuation that neither the Qatari Royal family, Red Knights, nor institutional investors in two continents are willing to match.

Whether the family reinvigorates the IPO in the coming weeks is the real question, of course, with the FT casting doubt that the process can be completed in the current market window if the club is not priced by August. After all, if the market has spoken, the Glazers cannot return to New York without amending the structure and value of the listing. As the Wall Street Journal argued on Wednesday, while the fans love United whatever the financial outlook, US investors most certainly do not.

What next? Time for a full listing, with single class share structure that could bring partial ownership to the United fanbase, says MUST.

“The Glazers have been forced to pull the New York flotation of Manchester United due to lack of interest at the valuation they were placing on the club,” said ceo Duncan Drasdo on Wednesday.

“We now call on the Glazers to come back with a full flotation of Manchester United with a single class of full voting shares. Should they choose to do this, with no strings attached, we would support such a flotation wholeheartedly and encourage the global fan base of Manchester United to seize such an historic opportunity to secure a meaningful fan ownership stake where the priorities of the club are the same as the fans – not absentee owners.”

In the short-term United’s failure, once again, to list means that the club will continue haemorrhage money in interest and bond buy-backs – around £71 million in the first three quarters of the financial year. In the longer term the Glazers may be forced to re-value the club before sale, or flotation.

Much, of course, depends on just how much the family borrowed to refinance the Payment in Kind (PIK) loans last year, and whether the financial strain has become significant. In other words, not what motivated the Glazer family to change track and seek an IPO in the first place, but how big the financial need has become.

Glazer SEC filing exposes cloak and dagger strategy

July 5, 2012 Tags: , , Opinion 85 comments

One thing can be said for the Glazer family: they’re happy to go a long way to keep a secret. More than four and a half thousand miles from Manchester United’s base at Old Trafford, to the corporate tax haven on Grand Cayman in the Caribbean Sea, to be precise. But while the Americans seek to minimise future tax burdens and public scrutiny, in a corporate reorganisation prompted by a US-based stock market float this summer, the Glazers have also revealed more of their dubious business model, including, for the first time an admission that the club’s “indebtedness” is a burden.

United’s official announcement, Tuesday, that the club is seeking to float on the New York Stock Exchange (NYSE) came as the company filed statutory Initial Public Offering (IPO) papers in the US. These papers, which form a legally binding contact with potential investors, offer some insight both into the club’s financial model, and the extent to which United’s £443 million debt has finally triggered the Glazer family into action after six years in which the club has haemorrhaged more than £500 million on interest, debt repayments and other costs.

While the number of shares to be offered and the “price range for the proposed offering” have not yet been determined, the family is potentially seeking hundreds of millions of dollars for a minority stake in the club. Indeed, while the club had been seeking up to $1 billion in the now abandoned Singapore float, a $100 million figure widely quoted in the media is little more than a placeholder for a much larger NYSE offering that must take place within the next 90 days.

Bookrunners for the proposed IPO include medium-sized investment bank Jefferies, who will lead an offering far larger than any it has previously underwritten. Credit Suisse Securities, JP Morgan, Bank of America Merrill Lynch, and Deutsche Bank Securities are also in on the float. And it is these banks that will lead marketing for the float over the next three months, drumming up support for an IPO that will reorganise the Glazers’ myriad of holding companies, and split United’s ownership structure for the first time since 2005.

The family will move United’s ultimate base to the super-secretive tax haven Cayman Islands, while as has been previously mooted, the Glazers intend to offer only class A shares to the market, with Malcolm Glazer and “his six lineal descendants” retaining a majority stake of class B shares that hold 10 times the voting power.

The filing with the US Securities and Exchange Commission (SEC) makes clear that investors in United’s IPO with neither get significant voting rights nor any future dividends from the offering. Investors can hope only to gain through future capital gains if United’s operating profit grows in the coming years.

Underpinning the listing is the family’s belief that United’s global appeal will reap financial rewards. The IPO prospectus makes much of the recent ‘study’ that United is “followed” by 659 million people globally, with, says the filing, a popular Facebook page that boasts more than 26 million connections.

Future growth is likely to be based on a triumvirate of financial streams: broadcasting revenues, commercial income and matchday sales.

United’s revenues have grown under the Glazer family’s ownership, with the club listing sponsorship income as rising from £37.2 million in 2009 to almost £55 million in the year ending 30 June 2011. Meanwhile, the club’s very long-term deal with Nike, which is set to be renegotiated by 2015, has grown incrementally from £23.3 million in 2009 to more than £31 million last year.

Similarly new media and mobile revenue has increased, while commercial revenue from sponsors such as Nike, Aon, DHL, Epson, Turkish Airlines and Singha has increased from £66 million three years ago to more than £100 million in 2011.

Together with increasing revenues from domestic and overseas broadcast rights, which the family has little direct control over, United intends to expand its “global retail footprint”, says the club’s SEC document, investing in a “portfolio of product licenses” that will bring United’s brand to an ever great audience.

Whatever the grand plans for financial growth the club also faces challenges in the coming years, underlined in more than 20 pages of sobering – and legally required – risk assessment. Not least the club’s debt, which the Glazer family, chief executive David Gill and Sir Alex Ferguson have routinely claimed has no effect on the business.

No longer, with the SEC document concluding that debt could “adversely affect” the company’s “financial health and competitive position.”

“As of March 31, 2012, we had total indebtedness of £423.3 million,” continues the SEC filing. “Our indebtedness increases the risk that we may be unable to generate cash sufficient to pay amounts due in respect of our indebtedness. It could also have effects on our business.”

These effects, concludes the document, may include an impact on the playing team’s competitiveness, especially with some clubs – particularly Chelsea and Manchester City – spending “substantial sums” on transfer fees and salaries. This increased competition, says United, could result in team finishing lower in Premier League than in the past, jeopardising qualification for the Champions League, which would “result in a material reduction in revenue.”

Indeed, United admits that the “ability to attract and retain talented players and coaching staff,” could negatively affect brand and reputation and that “our business is dependent upon our ability to attract and retain key personnel, including players.”

This may go some way to explain United’s acquisition of Japanese international Shinji Kagawa for £17 million this summer, with Ferguson’s side desperately requiring creativity from midfield after a season in which the club finished trophyless, and the Glazers’ business model hinged on global reach. Indeed, United’s “popularity in certain countries or regions may depend, at least in part, on fielding certain players from those countries/regions,” admits the SEC document.

But while many of the risk factors drawn up by the IPO prospectus are unlikely – terrorism, natural disaster, or a downturn in football’s popularity, for example – it is the financials that will concern United fans most. Indeed, the IPO filing demonstrates, not for the first time, just how frequently the club leaks cash due to the Glazer family’s business model, including “£4.8 million in professional advisor fees in connection with the proposed public offering of shares.”

Moreover, the filing also gives some insight into the mysterious repayment of the family’s Payment-in-Kind hedge fund loans, concluding that “£111.1 million of interest payments were made in 2011 in connection with the repayment of our payment in kind loan.”

By contrast the £7.2 million United paid in ‘consultancy fees’, in the fiscal year to 30 June 2011, to Red Football LLC – the Glazers’ holding company – is a drop in the debt ocean. The Glazers also took consultancy fees of £2.9 million in 2009, and £3.1 million in 2010.

The Glazers also drew loans from the club of £10 million between December 2008 and November 2010 at a nominal 5.5 per cent interest, although that is somewhat moot given that the club also paid the family a £10 million dividend in 2012.

Despite the relative transparency of United’s IPO filing, these small morsels of financial information may remain rare, although the club will be required to make quarterly filings with the SEC post-offering. After all “following the offering, we will be a “controlled company” within the meaning of the New York Stock Exchange rules,” states the filing, “and we intend to take advantage of exemptions from certain corporate governance requirements.”

But many eyes will remain on United in the coming weeks as the family gears up for a listing in a tetchy post-Facebook IPO market. And it is the market that will eventually determine whether the Glazer family has struck the right chord with an IPO that offers investors a very limited, and admittedly risky deal.

Should the market buy into the pitch, then United should enter a new far less indebted world in the coming months. After all, the Glazers filing promises to “use all of our net proceeds from this offering to reduce our indebtedness” by exercising options to redeem in aggregate principal senior secured bond notes that are due to mature in 2017.

Whether that leaves United better able to compete remains an open question. After all, while the club may become – if the IPO is successful – far less indebted, it will still be owned and completely controlled by the Glazer family. A family that has taken seven years to conclude that its debt-fuelled takeover was damaging to the club.

Key Takeaways

  • United will offer an as yet undetermined number of shares at an unspecified price on the New York Stock Exchange within the next 90 days
  • The total value is likely to far exceed the $100 million ‘placeholder’ noted in the club’s SEC filing
  • The club “intends” to use all proceeds to pay down debt, which currently stands at £423 million
  • The club will offer only Class A shares that have much reduced voting rights; no dividend will be offered to investors
  • United’s ultimate holding company will be based in the tax haven of Grand Cayman, Cayman Islands
  • United, through a myriad of holding companies, paid more than £111 million in payment-in-kind loan interest in recent years
  • It is estimated by various analysts that the club has spent more than £500 million on debt, interests and other costs associated with the Glazer family’s business model over the past seven years
  • United has finally admitted that “indebtedness” is a risk to the club’s business model and competitiveness, on and off the pitch
  • Despite this, Glazer family took a £10 million loan from the club in 2008-2010, and paid itself a £10 million dividend in 2012.

Glazers’ US IPO barely credible, let alone realistic

June 14, 2012 Tags: , Opinion 36 comments

Manchester United owner, the Glazer family, is exploring options to float the club in the United States, reports Reuters this week, after abandoning a mooted Asian IPO for the second time. Seeking up to £600 million in a partial floatation, the Glazers have now binned attempts to list the club in both Hong Kong and Singapore, with a New York IPO now proposed by the Tampa-based family. But just as Asian plans foundered on the Glazers’ ambitious over-valuation of the club, so presumably will any US float.

Plans to float in the States is one of a long line of proposed solutions to United’s £423 million debt, which has dogged the club since the Glazer family’s 2005 leveraged buyout. Two subsequent refinancing rounds have converted debt secured to buy the club into a long-term bond, while the family also paid down hundreds of millions in now infamous payment-in-kind hedge fund loans, presumably through a further US-based loan. The last published accounts showed gross debt at around £423 million, with net debt at £397 million.

The latest plan, claims Reuters, is to position United as a global “media business,” rather than appealing to the retail-centric institutional investors in Singapore, who failed to express the kind of interest the Glazers had sought. The Americans are also said to be pressing ahead with a dual-track listing in New York, offering only a small percentage of shares to the market with full voting rights, enabling the family to retain full control over the club.

“The U.S. listing would come either on the New York Stock Exchange or its electronic rival Nasdaq,” the Reuters article claimed, citing unnamed sources.

“A person familiar with the New York Stock Exchange, owned by NYSE Euronext, said an exchange decision is expected soon. U.S. One of the sources said Manchester United had always planned to position itself as a global media business rather than a sports franchise, suggesting that a U.S. listing would make more sense. Investors are familiar with the dual-class share structure that was under discussion for Manchester United’s Singapore listing, having seen it used by household names such as Google and Facebook.”

However, the family pulled the plug on Asia in part due to ‘volatile market conditions’, say analysts familiar with the situation – a less-than-subtle euphemism for the failure to attract interest at the price sought: a valuation in excess of $4 billion (£2.4 billion). Meanwhile, in a down-turned economy other sports and retail listings have failed in Asia, including the now postponed Formula One float, and the underwhelming Prada and Samsonite IPOs.

The mooted float in the US may suffer the same lack of investor intention though, unless the family lowers its proposed asking price, or promises the market a huge premium on future dividends – a logistic and legally impossibility.

Glazers’ Dilemma

Indeed, simple back-of-an-envelope calculations illustrate the Glazers’ dilemma in listing on any market, let alone in the US where there is no history of sports franchise flotation.

On takeover in 2005 the Glazer family paid 300p per share for 70 per cent, or thereabouts, of the club it did not already own, valuing United at £795.76 million on a price-to-earnings (P/E) ratio of around 19. Seven years on, and although the volume of shares to be listed is unknown – ceteris parabis – United might be reasonably be valued at more than £2.215 billion on the same multiplier. This is a reflection of the steep rise in earnings before tax and deductions under the Glazers’ stewardship.

The line drawn by the Glazer family between the price paid in 2005 and a 2012 paper valuation in excess of £2.5 billion is conveniently transparent. But all things are, of course, not equal and revisiting the takeover is illustrative, predominantly, of the steep premium paid by the Glazer family in 2005. It was a deal front-loaded with significant ‘goodwill’ – that is, the value place on intangible assets such as United’s ‘brand’.

In the intervening years the global financial outlook has deteriorated markedly, while sharply rising staff costs and uncertainly surrounding UEFA’s Financial Fair Play (FFP) regulations adds more than a little fog to any valuation even on the most generous projections of United’s future income.

US-based magazine Forbes uses a more pragmatic P/E multiplier of 12 in it’s 2012 list of “Soccer Team Valuations,” placing an approximate value on United of £1.39 billion. Even this may be generous. Forbes applies a multiplier of 8.7 to the structurally-unacquirable – and more profitable – Real Madrid, 13.6 on Barcelona, 13.1 on Arsenal and 10 on Chelsea. Perhaps a better guide still is the 10.3 multiplier at which an ailing Liverpool was sold to Fenway Sports Group in 2011.

Calculation of an IPO pricing is, as ever, part art as well as science. Elsewhere in New York the world’s most valuable company Apple is trading at P/E 14, and Google at 17.

There is almost no comparable sports franchise listed in New York, which ought to say something. However, stretching the ‘sports’ term to World Wrestling Entertainment, Inc. (WWE) yields an interesting comparison. In the same period as United’s last reported accounts WWE, on very similar earnings, yielded a market cap of around $1.39 billion (£894 million). The market considered the price a bubble, and WWE is today trading at less than half its previous share price.

Little wonder sceptics doubt the Glazers’ ability to list on NYSE at the price seemingly desired. The market is likely to reject the listing by under-subscribing the IPO, or much like the recent Facebook listing, the share price will tumble on open trading.

However, it is unlikely the Glazer family will get that far according to some observers. Independent United blogger and analyst Andy Green called the proposals “desperation” on the Glazers’ part in an interview with Reuters, Thursday.

“First it was Hong Kong, then Singapore and now New York,” said Green.

“The Glazers assumed they would get a high price in Asia and they haven’t – I’m not sure they will in the US either given there’s no tradition of listed sports clubs.”

Television Rights

That said the Glazer family will certainly cheer the Premier League’s new television rights deal struck with BSkyB and BT this week that will yield more than £3 billion between 2013 and 2016. It is a 70 per cent uplift in domestic media income, which alongside international rights still to be negotiated, could net United £20 to £30 million more annually in Premier League media rights.

Sky paid £2.28 billion for the rights to five of the seven available packages, which secured 116 live matches a season. BT acquired two packages for a total of £738 million, with the telco able to broadcast 38 matches per season.

The additional income, claims Premier League chief executive Richard Scudamore, will enable United and other English clubs to compete more effectively with Real Madrid and Barcelona who sell their broadcast rights individually.

“This will take our clubs up a notch closer to those clubs who benefit from the individual selling model, say in Spain,” Scudamore said.

“I hope this will keep our league as competitive as it can be, under a collective selling model, with the other leagues. We have just come off the back of a fantastic season and, yes, it has been good for us that we are in the market and selling something at the time when what we are displaying on the field, and therefore able to broadcast, is an attractive proposition.”

Attractive though the proposition may be, more than 20 years of Premier League history has taught that the symbiotic relationship between television income and players’ wages is almost perfectly correlatory. The television income bubble has not burst, but neither has players’ desire for ever more lucrative contracts been satiated.

Manhcester United wages and TV income

Source: Andy Green, andersred.blogspot.co.uk

Perhaps, then, the real question with the IPO is not whether the Glazer family can get this one away, at the price they want, and with associated bond buy-back so heavily promised last time around, but what the strategy is post failure. It’s a scenario that, unlike the Premier League rights process, will bring little cheer to the American family.

Nor to United supporters concerned that the club should become competitive in the transfer market once again. After seven years of parsimony, it need not take a cynic to spot that dose of realism.

Glazers’ dual track IPO gets green light

September 16, 2011 Tags: , , , Opinion 30 comments

The Glazer family will list Manchester United on the Singapore Stock Exchange (SGX) this autumn after local authorities gave the American family a green light for the partial IPO. The family will sell off around a third of United’s shares in a much-discussed dual track listing that will raise money but ensure the Glazers remain in Old Trafford control. Amid speculation over pricing, with the family seeking around £600 million for a 25 – 35 per cent listing, United could float by mid-October if the Glazers drum up enough local interest.

Yet, with controversy surrounding the dual track nature of the shares being offered – investors will be required to purchase non-voting preference shares in addition to ordinary stock – many questions remain about the IPO’s potential success. Not least just how attractive the Glazer family will make preference share dividends for investors who will have little influence on the club’s future strategic direction.

“They have received approval but the timetable is not fixed,” a ‘source’ close to the IPO told newswire AFP on Friday.

“The company is not in need of funds so they are not in a hurry to list. Basically, they are keeping a watching brief on market conditions. Now that there is approval, they can roll out any time.”

The SGX go ahead will allow United to open formal talks with potential anchor investors, while a prospectus and tour are likely in the coming weeks. The club is believed to have already held informal discussions with investment company Temasek Holdings, which is owned by the Government of Singapore.

SGX’s go-ahead comes amid fresh speculation in the Mirror that the Qatari Royal family is prepared to offer £1.6 billion for total acquisition of the club. In reality United may approach the Qatari’s to take a significant, if minority, shareholding on flotation, with the Glazers now convinced IPO will maximise the family’s profits. Full sale is surely likely only if the IPO gravy-train fails in the coming weeks. After all, with the eurozone debt crisis showing no signs of abating, markets globally have become twitchy about new listings.

However, Qatar is making significant noises in the football market, having won the right to host the 2022 World Cup finals, while members of the Royal family has invested in Malaga and French Paris St Germain. The Qatari Foundation struck a record-breaking shirt sponsorship with Barcelona last season.

“The Mirror understands that a delegation from the Qatari royal family, headed by Sheikh Hamad bin Khalifa Al Thani, will be in Manchester on Monday in a bid to conclude the deal,” said the paper on Friday.

“Top Middle East sources revealed last night that an official approach to the Glazer family is being made and a deal could even be clinched by next week. The super-rich Qataris think United is a good deal – even at the profit it would make for the current rulers.”

Doubts remain about the IPO’s potential for success, with the family seeking to retain around 90 per cent control on flotation. The dual track listing means each ordinary share will be sold with a preference share. While preference shares hold no voting rights they will attract higher dividends and first option of repayment in the unlikely event that United is made insolvent. In practice this means that post-IPO United is likely to pay out higher annual dividends than if the Glazer family went for a standard listing.

“Football clubs around the world are mostly quite closely held and not very transparent,” Pearlyn Wong at Bank Julius Baer & Co., told Bloomberg on Friday.

“They don’t like to give up voting rights so they can make faster decisions over things like players and management. Usually preference shares come as a follow-up offering, rather than at the IPO stage. Whether people will receive the share structure well depends on how much dividends they can get and whether the company has the cashflows to support it.”

United recently reported annual pre-tax and interest (EBITDA) earnings of £110.9 million for the year to the end of June 2011, with a pre-tax headline profit of £29.7 million. However, the club currently pays around £45 million per season in interest on bond debt, although it spent more than £60 million in the past financial year buying back some of the notes. United has spent more than £470 million on interest, debt repayment and related fees during the course of the Glazer family’s six-year tenure at Old Trafford.

Another senior analyst told Bloomberg that “institutional investors are unlikely to be interested [because] the lack of voting rights is just a kick in the teeth,” raising the spectre that the Glazers will sell United’s brand to retail investors. It is not a community that traditionally has a strong voice in the Singapore market.

The doubts place into question the IPO timescale, which could now happen at any point but is likely to go ahead – if at all – when the Glazer family believes the market is most receptive. Moreover, the family’s oft-reported $4 billion asking price – a significant premium by any measure – will be tested by a genuine market valuation for the first time.

Then there is the question about just how much debt the IPO will enable United to repay. After all, the dual listing has a significant impact on this process, with ordinary share sales diluting the family’s holding and raising money for the Glazers directly, and preference shares raising money for the club.

Photo credit: Flickr/NickD58