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SBD Global/July 6, 2012/Finance

ManU's IPO Could Lift The Veil On The Club's Debt

ManU directors Bryan Glazer, right, and Avram Glazer are hoping to lift the club's $664M debt.
In the seven years since the Glazer family bought ManU, transparency has not featured significantly in their ownership, according to Roger Blitz of the FINANCIAL TIMES. But even skeptical fans of the Premier League giants may have welcomed the prospect of a U.S. flotation to "take a closer look under the bonnet." What emerges from the prospectus is "a mixture of just how secretive the Glazers have become" as custodians of one of sport's biggest brands and how "increasingly anxious they have become to raise cash." Four factors stand out from the prospectus -- the reorganisation of Red Football, the club's parent into a newly formed holding company registered in the Cayman Islands; its qualification as an emerging growth company that gives it a five-year period when it does not need to disclose full financial information; its intention not to pay a dividend; and the Glazers' retention of voting power (FINANCIAL TIMES, 7/4). In London, Keith Weir reported that ManU plans to "cut its debt" with a New York flotation that should free up cash for top players. Fans are hoping the flotation will help the club get back to its previous dominant form. ManU Supporters' Trust Head Duncan Drasdo said, "If it turns out that the vast majority of the proceeds are used to pay off the debt that is certainly something must would welcome and entirely vindicates our longstanding position that their debt was damaging our club" (REUTERS, 7/5). In N.Y., Hester Plumridge reported that according to someone involved in the process the Glazer family "hopes to raise about $500M" in a U.S. listing in coming months. ManU has good reason to tap the markets. It has net debt of $664M, well in excess of its $520M in annual revenue, a legacy of the Glazers' highly leveraged takeover. Its shares may struggle to score. The Glazers plan to use about $100M to pay down debt and the rest to reduce their stake. But this still would leave ManU one of the U.K.'s most indebted clubs (WALL STREET JOURNAL, 7/5). The London, Ian Ladyman wrote ManU's filing for an IPO at the N.Y. Stock Exchange could "lift the veil" of its debt. He added, those who follow United "have grown used to seeing past the headlines and the jargon." Therefore, it would not have taken long to find the paragraph in the filing that mattered, which read, "Our indebtedness could adversely affect our financial health and competitive position. As of March 31, 2012, we have had total indebtedness of £423.3M ($657M)." Seven years after taking the club into private ownership, the Glazers "have given up the fight to keep their spiraling debts under control." By filing to list the club on the NYSE, they have effectively admitted that only the share-buying public can save them (DAILY MAIL, 7/4).

GOOD OWNERS: In London, David Conn reported that ManU manager Alex Ferguson has repeatedly described the Glazers as "excellent owners" to the dismay of clear-sighted supporters. The club's CEO David Gill has insisted that "the debt and interest burden has not damaged the club's ability to invest in Ferguson's team," or its sense of itself as the grandest of clubs. Those blandishments have worn thin (GUARDIAN, 7/4). The GUARDIAN's Jamie Jackson wrote in The Sports Blog that the club's indebtedness "increases the risk" that it may be unable "to generate cash sufficient to pay amounts due in respect of our indebtedness." Of the six ways this could happen three are of particular concern. The debt could affect ManU's "ability to compete for players and coaching staff," limit its flexibility in planning for, or reacting to, changes in its business and the football industry; [and] increase its "vulnerability to general adverse economic and industry conditions" (GUARDIAN, 7/3). The AFP reported that ManU supporters "gave a guarded welcome" to the club's planned U.S. share sale, warning the move could only be deemed a success if it helped to pay off the Red Devils' massive debts. ManU fans have long protested the Glazers' heavily leveraged takeover, arguing that the debts loaded onto the club have "steadily eroded its ability to compete for top talent in an ever-spiraling transfer market. Tensions over ManU's finances hit a peak in '10, when the club's liabilities topped $1.55B and fans rebelled at management, launching protests aimed at denying the club revenues. But the debts have been slashed in the past two years, and profits have grown despite the team's narrow loss of the EPL title to cross-town rivals Manchester City (AFP, 7/4).

DROP IN THE OCEAN: In Manchester, James Robson reported that "frankly £64M ($99M) is a drop in the ocean" that is still likely to see Alex Ferguson forced to"punch below his weight" in the transfer market. This is not a £64 ($99M) bonanza for Ferguson, even if the Glazers have admitted that their indebtedness does affect ManU's ability to compete for players. No supporter will oppose the reduction of the debts that came as part of the Glazers' takeover in '05, but the reality is that ManU's spending power "is unlikely to be significantly boosted by the share issue." That is the bottom line for the average fan. Can the most valuable club in world football still compete for the best players? (MANCHESTER EVENING NEWS, 7/5). In London, James Ducker reported that many seized on a line on page 25 of the filing that states that ManU's "indebtedness could adversely affect our financial health and competitive position," but to anyone who follows the club closely that was as much a statement of the obvious as the warning of the adverse impact the retirement of Manager Alex Ferguson would have. Primarily, there was hope in the form of just 15 words. Having listened with growing resentment to repeated claims over the past seven years that ManU's ability to compete was unaffected by the club's debt mountain, the news that the Glazers "intend to use all of our net proceeds form this offering to reduce our indebtedness" was warmly received (LONDON TIMES, 7/5).
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