It was announced yesterday that Manchester United would be launched on the New York Stock Exchange in an Initial Public Offering (IPO) within the next three months. It came to light last year that the Glazers wanted to launch the company on the Singapore Stock Exchange late last year, but the financial situation in the country at the time halted the floatation taking place.
Documents were filed yesterday (3rd July 2012), in New York with the United States Securities and Exchange Commission. You can read full document containing the information here. When the documentation was released, Manchester United supporters on twitter and Facebook were asking questions, rumours began to spread and people started to assume that Manchester United were in a worse situation than they actually are.
What Does This Mean For Manchester United?
The Glazers starting the IPO process means that they know Manchester United cannot continue to run as one of the world greatest football clubs and a profitable business, if the debt they brought on the club continues to stay there. Don’t get me wrong here but the Glazers are trying to sort out the debt, but over £500m has been taken from the club to make interest payments on the debt over the last 7 years. In the documentation released yesterday, Manchester United’s current debt (as of 31st March 2012) stood at £423.3m, which is much better than it originally was back in 2009.
With a debt of that amount, it would only be a matter of time before income started to shrink and the club found it harder to compete in the transfer market, and pay the interest of the debt. The way forward is to float part of the club on the Stock Market to raise some capital to either reduce or settle the debt. This would be the ideal situation for each and every Manchester United supporter around the world.
Manchester United without the debt introduced by the Glazers, would return to be the most profitable football club in the world. Between 2009 and 2011, Manchester United spent a total of £125m purchasing players, made a total of £153m selling players leaving a net profit of £28m. In the same period, the club spent £244.9m on interest on the debt. Although the Sir Alex Ferguson has never spent like rivals Manchester City in one transfer window, if the debt was not there, the club would be able to attract World Class Players again, which in turn could lead to success both domestically and in Europe.
Manchester United without the debt, would be a dream come true for me and probably for you too!!
“We intend to use all of our net proceeds from this offering to reduce our indebtedness” – Quote from the IPO documentation
What Does The Initial Public Offering Mean For Manchester United?
A percentage of the club will be sold on the New York Stock Exchange, at a share price which is currently unknown. The documentation filed yesterday suggested that the Glazers would like to make $100m from the sale. This resulted in the English Press speculating at this amount. Transferred to GBP the Glazers would stand to make approximately £64m for Manchester United. This amount hardly seems worth the bother. It has come to light that this $100m amount was only mentioned to pay the fee for the IPO, which stood at $11,460. This is in fact the minimum amount that the Glazers would like to achieve. They will actually make more than this, a figure I see more likely to be around £1bn.
- Manchester United will now become a company registered in the Cayman Islands
- The size of the IPO has not yet been set. It will largely depend upon the demand for shares
- The IPO offer is for ‘A’ shares. The Glazers will keep 100% of ‘B’ shares. which have 10 times the voting rights of ‘A’ shares
- IPO documentation suggests that proceeds of the IPO will be ‘largely’ used to pay down the debt
- Manchester United, although based in the Cayman Islands, will still be taxed as a US corporation
- No dividends will be paid on shares, which means shareholders will only make money if the share price rises and they sell their shares
- Manchester United cannot compete with debts of £423.3m
- Many risk factors were mentioned (I will talk about them), these were mentioned to legally cover Manchester United and the owners
- The IPO will need to be finalised within 90 days from the date of application (3rd July 2012), this will need to include proposed share prices etc
- The $100m valuation is solely to calculate the registration fee, which was $11,460, which is in accordance with Rule 457(0) under the Securities Act 1933
- How much capital the IPO raises depends on the price that the Glazers want per share – the value of the club
- The main point for fans is the fact that no dividends are payable and the shares have limited voting rights
What Are The Risk Factors Involved In The IPO?
There are risks in every aspect of running a company, and although the risks mention in the IPO documentation, really supporters should not worry about them. The risks have been mentioned to cover both the club and the owners, just in case anything does happen. This will stop any lawsuits but shareholders, as they have been informed of the different scenarios in the documents.
You can read the risk factors from page 13 to 34 of the documentation. They cover certain aspects like money from European competitions should not be relied on, as being knocked out of the UEFA Champions League group stages did in fact have negative effects on the money earned by the club last season. Other risk factors were terrorism, natural disasters, economic downturn and adverse economic conditions.
What Would Be The Ideal Outcome Of The IPO?
The ideal scenario would be that the flotation earns enough money to pay off the current £423.3m debt, plus any interest due up to the date the debt has been settled. There is also the bond issue which was finalised in 2010, ideally the club would like to purchase all of the bonds, making them totally clear of all debt. Obviously if enough capital did not come from the IPO, the priority would still be the debt against the club, as that is what is hurting Manchester United right now. The interest payments alone are taking a huge slice of profit the club makes.
Will The Glazers Sell Manchester United When The Debt Has Been Settled?
That is an answer we would all like to know. Ideally if the debt had been eradicated from the club, it would be a more lucrative deal for the Glazers. They would surely get close to their valuation as there would be no debt held against the club. One suggestion I have, is that the ‘A’ shares being sold hold little voting rights, and the ‘B’ shares the Glazers will hold, will effectively have 10 times more voting rights, it is possible that the Glazers will sell some on their shares after some time has passed. The voting rights alone would make their shares more valuable for any groups wanting to start a take-over of the club.
If this does happen, lots of Manchester United supporters would be happy to see the back of the Glazers, but I would say we should be careful what we wish for. Would you like Manchester United to be owned by a group similar to the owners of Manchester City? I am sure lots of supporters would see the cash boost enticing, but surely one day the bubble will burst and all Arabian sugar-daddy owners would eventually get bored with the day-to-day running of the club?!?!
A debt free Manchester United would be a dream come true for me, and that I all I would like to see at this moment in time. I have been a Manchester United supporter since 1986 and really would not see myself supporting another football club in the way I support Manchester United. Us older generation fans have seen some bad times in the running of the club and many trophy-less seasons. Seeing the club I love shackled with a huge debt is not a nice thought but I have put it to the back of my mind as personally I do not see the point in protesting against the Glazers at Old Trafford. I will continue to purchase match day programs and merchandise at the megastore. If all the fans stopped doing this, it would have adverse effects on the club and could eventually see the club in dire straits that could lose income on a large-scale and possibly not earn the club enough to maintain the debt, like they have been doing for a number of years!!
I hope the IPO flotation does actually work and that the Glazers don’t get too greedy in the share prices they would like to achieve. This will be a perfect opportunity to raise the capital to eradicate the debt of the club and should be managed wisely and carefully. If this is done I am sure we will see Manchester United either debt free or with a considerable amount of debt paid off, in the near future.
By Paul Bienkowski