Manchester United Share Issue A Victim of the Facebook Flop?

on Aug 1, 2012
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Manchester United (MANU:NYQ) confirmed its proposed New York Stock Exchange (NYSE) listing on Monday (July 30), an initial public offering (IPO) which could increase the value of the club by £210 million ($300 million) if the upper range of the proposed pricing of shares is achieved. Hoping to reduce part of their heavy debt, Manchester United’s owners, the Glazer family, will sell just over 10 per cent of the British club. If the sale achieves the high end of the pricing range of $16-$20 (around £10-£13) per share, it would make United’s total value £2.1 billion ($3.3 billion). The Glazers, however, bought the team for £790 million ($1.2 billion) in 2005 and recent estimates valued the club at not more than £1.4 billion ($2.2 billion). The Premier League club’s controversial IPO has provoked a negative reaction from analysts who believe the shares are overvalued at the proposed price.

“If you look at the current exchange rate, you get about £2 billion. They were talking about £1.8 billion a year ago, which is way too high,” said David Bick, chairman of Square1 consulting. “I just don’t get the valuation. I don’t get why major banks [as underwriters] have put their name behind it.”
The Glazer family is looking to raise funds to help reduce its debt by £75 million ($116.5 million). But Bick said that this is just about 20 per cent of the debt which have recently been rated at £437 million ($679 million). “It is the bare minimum. I think that this float is just the prelude to them getting a market price and selling the club,” he added.

!m[](/uploads/story/221/thumbs/pic_1_inline.png)Given its current debt position, Manchester United is massively overvalued, said Michael Jarman, chief equity strategist at H2O Markets, for BBC News. According to him, the upcoming share flotation values the club at a price which is almost 50 per cent more than the value estimated by Forbes magazine, which recently pronounced Manchester United at £1.4 billion ($2.2 billion) — the most valuable club in world sport. Some analysts, however, believe that even these figures are inflated. Less than two years ago, a group of investors led by Goldman Sachs Asset Management’s chairman, Jim O’Neill, valued the club at about £966 million ($1.5 billion). Considering the global economic situation since then, the football club’s value would not be expected to have risen significantly, if at all.

Previously, the club was listed on the London Stock Exchange from 1991 until the Glazers completed a leveraged buyout in June 2005. The Glazers will retain control of the club’s shares on NYSE through its ownership of Class B shares, which will have 10 times the voting power of the stock sold to the public. The Class A shares being sold in the IPO will carry only one vote each. Accordingly, the Glazers will maintain almost 99 per cent voting power over the club after the offering. This also provoked a reaction from analysts who started questioning the Florida-based family’s decision to float the club in the U.S., rather than the U.K.

“You would never get it in London and I am kind of surprised they would have it in the US with A Shares and B shares,” Bick said in a commentary. According to Sqauare1 Consulting’s chairman, the inflated value of Manchester United and the proposed share sale on NYSE would possibly discourage potential investors.

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