United’s Stock Flotation Analysed & Explained

Is this a positive move from the Glazers?

Late on Tuesday evening the Glazer family gave notice of their intention to list Manchester United on the New York stock exchange by way of an IPO (initial public offering) and released a 293 page prospectus outlining their intentions.

Despite having previously explored a flotation in Asia, the Glazers have now settled on the US market, having satisfied themselves that there is sufficient investor interest in the States. In the 24 hours or so since the announcement a great deal of inaccurate reporting and scaremongering has surfaced in the media and elsewhere. To the average United fan the contents of the prospects and comment on it is hard to understand and so the purpose of this article is to attempt to present the important issues relating to the IPO in a way that we, as fans, understand.

The first thing is should say is that this is not a morality piece about the Glazer ownership. No United fan wants them or their toxic debt at the club. There can be absolutely no doubt that United have been hampered by the debt. Whilst the clubs wage policy of 50% of turnover is a continuation of the PLC line it is hard to imagine that money available for transfers has not been affected as £500m has leaked out of the club. Similarly there is no arguing with the fact that a proportion of the Ronaldo sale money was used to buy back the club’s debt. The astonishing rise in commercial income since the takeover goes some way to offset these expenses but the in practice losses under the Glazers, even by conservative estimates, run into 9 figures. However, what we must not do is to assume that United have “no money” or cannot compete. The club is still extremely cash profitable. What the IPO does demonstrate though is that, under the burden of debt, the club are dealing in very fine margins and having to be extremely careful in the transfer market.

Anyway, enough waffle. The reality of the situation that we find ourselves in is that the Glazers simply aren’t going to go away and we cannot get all the money wasted back. The best route for Manchester United to return to full health is for the debt to be paid off and the Glazers to get stinking rich, as unpalatable as that may be. The IPO is an opportunity for Manchester United to become healthier. The important points are as follows:
-MUFC is not going to go bust without the IPO. It is, however, an acknowledgement by the Glazers that the club needs more financial flexibility to maintain on and off pitch performance.

-The club currently carries £423m of debt, down from the £485m of 18 months ago.
-The size of the IPO offer is not yet known and will depend on share demand. A decision to list shows that the Glazers a confident of significant interest. Contrary to reports the share offering is NOT for $100m. That figure is a minimum used solely for the calculation of the SEC listing fee. The money raised will likely be significantly larger, probably approaching or above the club’s debt burden.
-The prospectus says that proceeds from the IPO will largely be used to pay down the debt. This is extremely reassuring as it means that the Glazers aren’t planning to run off with all of the loot.
-The prospectus states that there are no intentions to withdraw dividends from MUFC and none can be taken until the debt is paid off in full.
-The shares offered are “A” shares. Put simply investors will have few voting rights and will not be getting dividends. The investment will simply be on the basis that shares can be sold at a profit (or loss) in future. This is common in the US but not the UK. Google are listed on a similar basis.
-There is a huge list of “risk” factors. The most often quoted one refers to the club not being able to compete financially.  Another warns of the risk of relegation. These are NOT the club admitting anything. It is, for wont of a better expression, legal arse covering. Investors must be made aware of potential risks, however remote.
-MUFC are being moved as a company to the Cayman Islands. Companies being listed offshore are not uncommon. This is a tax issue and not one that I fully understand. It does not significantly impact on the club.
And that is just about it.  United are still very profitable but the Glazers clearly think that the margins are too fine. My overriding wish is for MUFC to be debt free. Put simply I love United more than I hate the Glazers. My only motivation in writing this article is to explode some of the myths and hysteria of the last 24 hours and to reassure my fellow fans that a successful IPO is a good thing for the club. Removing the debt or a portion of it will release up to £40m that is being annually wasted on interest. The profit margins are good, but they could be great, meaning more money for transfers and possibly wages.

One other point: United are attractive to investors if their financial figures are good, but they also recognize that to achieve that the club must be performing on the pitch. Selling Nani or failing to invest in the squad wouldn’t look good and it’s my hunch that neither will happen this summer. Regardless of the vehement dislike that we all feel for the Glazer family, United are not in imminent danger of falling apart and might soon be faring a whole lot better. So there you go. Clear as mud.

Love United (more than I) Hate Glazer

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