Malcolm Glazer's LBO of Manchester United

[Karl K]

Well, folks, it's all over but the shouting -- or should I say, "fee collecting" on the part of Glazer's advisers.

The fans are screaming, but there is nothing they can do now.

He says he's a long-term investor, but this has all the hallmarks of a classic flip in the LBO world: take the cash it thows off, pay down the debt as fast as possible, probably within 5 years, and then own an appreciated asset (probably valued in 5 years at 1.5 to 2 billion pounds) after only putting in around 300 million pounds.

http://www.reuters.com/newsArticle.jhtml?type=sportsNews&storyID=8488779


A source close to the Glazers said they would hit the key 75 percent threshold on Monday, after which Glazer will have full control of the 127-year-old club and delist Manchester United Plc shares from the stock market.

...

The Glazers seized control of United on Thursday by buying a 28.7 percent stake from the club's biggest shareholder, Cubic, an investment vehicle for Irish racehorse magnates John Magnier and J.P. McManus.

That elevated their stake to 56.9 percent and, under UK takeover rules, kicked off a mandatory offer for the remaining shares.

Here's how he's financing this:

http://today.reuters.co.uk/news/newsArticle.aspx?type=footballNews&storyID=URI:urn:newsml:reuters.com:20050513:MTFH42339_2005-05-13_17-50-39_L13273673:1

The "new club" they are talking about is presumably the acquistion entity called "Red Football" that Glazer has set up to own these shares, and then to de-list them.


Below is a break down of how Glazer intends to fund his 790 million pound ($1.47 billion) takeover.

* Under the deal, Glazer plans roll his 28.1 percent stake in United, worth about 222 million pounds, into the new club and top that up with his own cash so that his overall personal contribution to the takeover is about 272 million pounds.

* Banks and funds, led by U.S. investment bank J.P. Morgan Chase & Co, will provide a 265 million pound loan to Glazer which will immediately be transferred to Manchester United's own balance sheet and secured against United's assets.

* The banks will also provide an additional 275 million pound loan in return for which they will be given preferred securities, like preference shares, in United. Glazer will have the right to buy back those securities from the banks over time.

* The three figures add up to 812 million pounds, which is more than the 790 million pounds Glazer needs to buy the club's shares. The difference of 22 million pounds will go towards paying Glazer's advisers' fees as well as funding the previously announced expansion of United's football ground at Old Trafford.

A hansdome payday for the advisers...nice work if you can get it.

[Karl K]

More interesting info on Man U's income and what will be needed to service the debt...

http://www.itv.com/news/index_348230.html


United fans now know that Red Football Limited, the working title of Glazer's bid, will receive £275 million funding from preferred securities which has not been secured against Manchester United's assets, and £265 million that will.

Given the club's most recent half-year profits were just £12.4 million, the owner of the Tampa Bay Buccaneers NFL franchise clearly needs to produce a substantial increase in turnover to service the debt.

And it is feared that he will look to generate extra revenue by increasing ticket prices and by trying to scrap the current Premier League collective bargaining agreement in a bid to get more money from TV rights.

Shareholders United chairman Nick Towle said: "These massive debts have to be serviced, both interest payments and repayment of the principle, and it seems that the revenues of Manchester United will be the prime source of that servicing requirement.

"This will put huge pressure on United to perform, both on and off the pitch. Some estimates believe that an additional £50 - £70 million per year in additional profit will be needed.

"Where is this extra revenue coming from? How can it be achieved? Look out especially for the renaming of Old Trafford and hiking prices of everything at the stadium."

[pc4th]

This is a great business deal on paper.

It could make the $180 million in profit John Magnier and J.P. McManus made by investing in ManU 4 years ago look like paperweight.

Economic 101: It's better for a company to have debts than without it (something tax benefits if I remember correctly). However, there is a certain thresthold that the debts can't go over, otherwise, it will negatively effect the company.

That's why company like Microsoft which has around $40 billion in cash lying around has debts (because the tax effect).

[denver_mugwamp]

I sure hope the Man U fans who are fighting this have a plan B because I agree with the OP, this thing is a done deal. Glazer owns the club now and there's not a damn thing they can do about it.

[RichardL]

This is a great business deal on paper.

It could make the $180 million in profit John Magnier and J.P. McManus made by investing in ManU 4 years ago look like paperweight.

Economic 101: It's better for a company to have debts than without it (something tax benefits if I remember correctly). However, there is a certain thresthold that the debts can't go over, otherwise, it will negatively effect the company.

That's why company like Microsoft which has around $40 billion in cash lying around has debts (because the tax effect).
I'm no expert on tax laws, but I don't see how having a £550 million debt can be a good thing.

As the report above stated, the club will have to somehow find an extra £50 million a year to just keep the club where it is now. To put that in perspective, that'd require a 30% jump in turnover. Even raising ticket prices would barely make a dent, not unless the raises were stunning.

e.g., say Man Utd play 25 homes games a season, allowing for cup games too, they'd have to raise £2 million per game extra. Divide that by 67,500 fans and it works out at an extra £30 per ticket. Most of the fans at Old Trafford are season ticket holders, paying around £425 a year (£25 x 17, two games free). That would rise to £935, a 120% price hike, for no benefit to the fans at all. In effect he'd be forcing the fans to pay off his debts for him.
Now every time prices rise people grumble, then generally end up paying them anyway, but a £500 jump is just too much, especially in a year where there's there first signs of worry that the premier league clubs may have killed the goose that laid the golden egg by raising prices too high already.

Yes, in theory he could take legal action to allow Man Utd to negotiate their own TV rights, but that'd not only be costly, he'd run the risk of upsetting the rest of the clubs - not a good idea when they could quite legally kick Man Utd out of the premiership with a simple vote. When Rangers & Celtic in Scotland tried a similar thing the rest of the SPL threatened to resign from the SPL, effectively leaving Rangers & Celtic with nobody to play against.

[Karl K]

I think naming rights for Old Trafford could amount to £5 million annually, given the worldwide visbility of the club.

Think "Virgin Atlantic Old Trafford" stadium. (Virgin...Old...now THERE's a juxtaposition.

For the value of naming rights in the USA, see this link.

http://sports.espn.go.com/espn/sportsbusiness/news/story?page=stadiumnames

Fees all over the map, but if Denver can get Invesco to pony up $7 million, and Atlanta $9 million from Philips for an INDOOR arena...well, think about ManU.

[CrewSchmack]

I think naming rights for Old Trafford could amount to £5 million annually, given the worldwide visbility of the club.

Think "Virgin Atlantic Old Trafford" stadium. (Virgin...Old...now THERE's a juxtaposition.

For the value of naming rights in the USA, see this link.

http://sports.espn.go.com/espn/sportsbusiness/news/story?page=stadiumnames

Fees all over the map, but if Denver can get Invesco to pony up $7 million, and Atlanta $9 million from Philips for an INDOOR arena...well, think about ManU.

They should be able to sell the rights to, not only the stadium, but the field, and each individual stand and consourse. Obviously the big money is on the field and stadium.

[DoctorD]

This is a great business deal on paper.

It could make the $180 million in profit John Magnier and J.P. McManus made by investing in ManU 4 years ago look like paperweight.

Economic 101: It's better for a company to have debts than without it (something tax benefits if I remember correctly). However, there is a certain thresthold that the debts can't go over, otherwise, it will negatively effect the company.

That's why company like Microsoft which has around $40 billion in cash lying around has debts (because the tax effect).

pc4th, IIRC the other reason to have corporate debt is to make your company less attractive to raiders. Companies that are debt-free are usually acquisition targets - like Man U.

[socks]

amazing that manu fans have ever had the idea that the manu entity somehow gives a ******** about them and their idiotic loyalty...sorry, but only as far as the bottom of your pocket. it's business, ********ed up or not, whether the owner is a fat tasteless yank or a fat limey wanker, it doesn't matter. But I'm glad to see there are so many 'fans' who have the leisure and energy to fight for the fat limey wanker over the fat tasteless yank.

[texgator]

pc4th, IIRC the other reason to have corporate debt is to make your company less attractive to raiders. Companies that are debt-free are usually acquisition targets - like Man U.
This isn't an issue.....as Glazer is going to take Man U private. You can't raid a private company.

[schmuckatelli]

amazing that manu fans have ever had the idea that the manu entity somehow gives a ******** about them and their idiotic loyalty...sorry, but only as far as the bottom of your pocket. it's business, ********ed up or not, whether the owner is a fat tasteless yank or a fat limey wanker, it doesn't matter. But I'm glad to see there are so many 'fans' who have the leisure and energy to fight for the fat limey wanker over the fat tasteless yank.
This is an interesting point of view, but naive. Let's understand the responsiblities here: What ManU owes its investors is return on investment. What ManU's management owes the supporters is a quality, entertaining product on the field. There's no reason to believe those ends are mutually exclusive. Beyond that, you can spout all the unkind invective about this fat yank or that fat limey, but it won't change these goals. And, unless the quality of play goes downhill, it won't stop people from paying to come to the park, either, in spite of what a few disgruntled supporters claim.
But cheer up: Glazer hasn't said anything about buying CD Guadalajara... yet!

[DoctorD]

This isn't an issue.....as Glazer is going to take Man U private. You can't raid a private company.

Of course it won't make a difference if ManU is private - just commenting on the naivete of putting ManU public in the first place without some kind of debt on the books.

[Northside Rovers]

This is all good news to the other 19 EPL teams.

The odds of them winning the title just increased.

[AndyMead]

I like all the outrage at "naming rights" for Old Trafford being sold. I guess the having this seat colored pattern in the famed hardcore Stretford End somehow escaped notice:

http://www.ibiblio.org/footy/2003/1209_man_vfb_ajm/web_ajm_2479.jpg

[superdave]

take the cash it thows off, pay down the debt as fast as possible, probably within 5 years, and then own an appreciated asset (probably valued in 5 years at 1.5 to 2 billion pounds) after only putting in around 300 million pounds.
I've seen Yank after Yank assert this, that the club is going to massively increase in value and make Glazer rich(er). But that begs the question, why were the shares so cheap, then? Everybody is an idiot except Glazer?

LBO's often work because the buyer restructures the company. I don't think Glazer is going to sell the unprofitable "reserves" branch, so that's out. The other possibility is that Glazer sees a way to cut costs that nobody else saw. While I think we may not see as many David Bellion-type signings, there's not alot of there there, since ManU's value as a global brand plummets if they can't compete for the EPL title, and if he slashes the payroll, they can't compete for the EPL title.

That leaves revenues. Again, Glazer is not a genius among the retards. He has ideas on how to increase revenue, but they're risky. OK, he's going to raise ticket prices, that's a given, but it won't be enough. And they're going to sell the name of the stadium. Is that enough? Not just to service the debt, but also to increase profits so that the club's value increases? If not, he has to find another revenue stream.

I'll keep saying it...when this cropped up a few months back, the story was that Glazer's lawyers thought EU law would allow ManU to sell their global TV rights independently of the rest of the EPL. And that right there would make the deal work. But a) his lawyers have to be right and b) the other teams in the EPL have to not expel ManU.

The other possibility is that Glazer will crack the US market. Good luck with that. Side story...about 5-6 years ago or so, two rival sets of gangs in, I think Chicago, starting wearing Duke and UNC paraphenalia. I can't remember what UNC stood for, but Duke was Disciplies Utilizing Knowledge Everywhere. For ManU gear to become hip, it's got to be urban. I hope Glazer's marketing strategy isn't going to be selling ManU shirts to Bloods.

There's alot of underpants gnome thinking going on. Step 1, buy the club. Step 3, sell at a huge profit. What's step 2, Karl? Anyone? To make the club DOUBLE in value in 5 years of low inflation?

[skipshady]

Side story...about 5-6 years ago or so, two rival sets of gangs in, I think Chicago, starting wearing Duke and UNC paraphenalia. I can't remember what UNC stood for, but Duke was Disciplies Utilizing Knowledge Everywhere. For ManU gear to become hip, it's got to be urban. I hope Glazer's marketing strategy isn't going to be selling ManU shirts to Bloods.Pointless anecdote: my former roommate at Carolina got pulled over in Colorado for no apparent reason. When asked why, the cop said he noticed the interlocking "NC" baseball hat, which the Northside Crips where. The funny thing is, the former roommate is about the whitest white kid to ever come out of Upstate New York.

But you do raise a point - how does Manchester United increase its value from here on? It's not like the club hasn't been aggressive marketing itself in East and Southeast Asia, and it's done quite a bit of legwork with the ChampionsWorld tours the past two summers. How much more marketable could they get?

And I know it's easy for us rival fans to make fun of the PLC structure, but that's what helped the club stay successful in recent years, as you don't see relatively few blockbuster transfers (Veron and Ferdinand notwithstanding) and the board shies away from giving huge pay raises.

We'll see if Glazer can be as wise in his spending.

[Karl K]

I've seen Yank after Yank assert this, that the club is going to massively increase in value and make Glazer rich(er). But that begs the question, why were the shares so cheap, then? Everybody is an idiot except Glazer?

LBO's often work because the buyer restructures the company. I don't think Glazer is going to sell the unprofitable "reserves" branch, so that's out. The other possibility is that Glazer sees a way to cut costs that nobody else saw. While I think we may not see as many David Bellion-type signings, there's not alot of there there, since ManU's value as a global brand plummets if they can't compete for the EPL title, and if he slashes the payroll, they can't compete for the EPL title.

That leaves revenues. Again, Glazer is not a genius among the retards. He has ideas on how to increase revenue, but they're risky. OK, he's going to raise ticket prices, that's a given, but it won't be enough. And they're going to sell the name of the stadium. Is that enough? Not just to service the debt, but also to increase profits so that the club's value increases? If not, he has to find another revenue stream.

I'll keep saying it...when this cropped up a few months back, the story was that Glazer's lawyers thought EU law would allow ManU to sell their global TV rights independently of the rest of the EPL. And that right there would make the deal work. But a) his lawyers have to be right and b) the other teams in the EPL have to not expel ManU.

There's alot of underpants gnome thinking going on. Step 1, buy the club. Step 3, sell at a huge profit. What's step 2, Karl? Anyone? To make the club DOUBLE in value in 5 years of low inflation?

First, to make this deal work you have not just service the debt but pay it down. It would be quite interesting to see how the preferrred shares are structured, if they have specific convenants or conversion rights. If 10% of the debt gets amortized in the first couple years of operation, then this deal will be a winner.

Second, you really do have to wonder about an asset worth pre-Glazer at around, what was it?? £400 million thowing off just £12 million of profit. That's serious underperformance. Something isn't right.

Third, there is no doubt that Glazer is very litigious, and will exhause all legal remedies to see if he can't, a la the New York Yankees (I bet his "model" for the business side of the deal), strike his own separate media deal. If he does, that alone might earn ManU upwards of £100 million annually. The lawyers are going to be kept very busy.

So, assuming he sells the naming rights for £10 million annually, and squeezes another £10 million of costs/revenues out, he's a third of the way to where he needs to be even before he steps to the plate to try and hit his media home run (sorry to mix sports metaphors!!!).

[RichardL]

Third, there is no doubt that Glazer is very litigious, and will exhause all legal remedies to see if he can't, a la the New York Yankees (I bet his "model" for the business side of the deal), strike his own separate media deal. If he does, that alone might earn ManU upwards of £100 million annually. The lawyers are going to be kept very busy.

So, assuming he sells the naming rights for £10 million annually, and squeezes another £10 million of costs/revenues out, he's a third of the way to where he needs to be even before he steps to the plate to try and hit his media home run (sorry to mix sports metaphors!!!).
Do you think he knows there's a rule here that if you take your own FA to court you are barred from european competition? The premier league is run by the FA.

There is also the little matter that Manchester United is not a franchise and has no legal right to play in the premiership. It'd be a drastic step, but if 14 or the other 19 voted them out, then they are out. And it wouldn't even be out down to CCC level either, it'd be out right down to Unibond League level, if they'd take them.

When Rangers & Celtic tried a similar stunt in the SPL (where an 11-1 majority is required) all the other 10 threatened to resign from the league, which would have left the old firm with a potential TV deal, but nobody to play against.

[superdave]

Do you think he knows there's a rule here that if you take your own FA to court you are barred from european competition?
Whoa!! Didn't know about that. That makes the plan even more far-fetched.

Wow, that's draconion.

The premier league is run by the FA.

Is it? I thought the whole point of the Premiership was to be separate from the FA?
It'd be a drastic step, but if 14 or the other 19 voted them out, then they are out.
Let's see...how many clubs would benefit from following ManU's path? I expect it would be less than 5, right?

[texgator]

Let's see...how many clubs would benefit from following ManU's path? I expect it would be less than 5, right?
Just because they wouldn't benefit from the path doesn't mean they would vote Man U out of the Prem. Many teams would probably reason that its better to have Man U in the league then out. Remember, they would only have individual TV rights for matches at the Budweiser Old Trafford Stadium presented by Vodafone. The other clubs would still stand to make money off of Man U games at their house. Albiet less then they would with a universal Premiership TV package. A question of......am I better off with $35 million a year or $20 million a year....even if I used to get $45 million a year.