Market Overview

Manchester United Files for $100 Million IPO in US


Storied soccer franchise Manchester United F.C. is set to sell shares for the first time in an initial public offering (IPO), SEC filings revealed Tuesday. The organization plans to list on the New York Stock Exchange, shunning a London offering and a much rumored Singapore listing.

The world-famous soccer team (full of stars such as England's Wayne Rooney and Ashley Young, Portugal's Nani, and Serbian international and captain Nemanja Vidic) has performed well over the past few years. Manchester United won the Barclays Premier League in the 2010-2011 season and finished narrowly in second in the 2011-2012 campaign behind cross-town rivals Manchester City. Manchester United also reached the finals of the UEFA Champions League, the major continental club tournament in Europe, losing to F.C. Barcelona in that game.

The current owners, the Glazer family, also own the Tampa Bay Buccaneers. In 2005, the family launched a $1.47 billion leveraged buyout of the club, filling the club's finances with debt. The filing says that the proceeds of the IPO will be used to pay off some of the outstanding debt. It is important to note that no share price has been listed and that the $100 million total is likely to change as demand for the shares is assessed over the next few months.

Manchester United reported $663 million dollars of debt as of March 31. For comparison, Manchester United made an operating profit of nearly $100 million in the twelve months ended June, 2011. The filing also indicates that much of the debt carries high interest rates above 8 percent, and raising cash to pay down debt may be a very good objective for the club.

Clubs such as Manchester United need cash to be able to attract and buy the best talent. By reducing the annual interest payments on its debt, Manchester United could make itself more competitive in the transfer markets, bringing in more big name players. This could be a plus for the brand value of the team, which could translate into higher sales of items such as jerseys with the team logo.

Potential investors must note that the Glazer family does not intend to cede control of the company or team any time soon. The shares are to be converted to a dual-class structure ahead of the offering, which would leave the family in control. The company is set to sell Class A shares (which carry one vote each), and create a new set of shares--Class B--which will be held by the existing owners and carry 10 times the voting power of A shares. Also, the company is being incorporated in the Cayman Islands where there are special anti-takeover laws.

Investors looking for a rock-solid balance sheet or a high-growth company may not be enticed into buying Manchester United shares. The high debt load will make interest expense high until the debt is paid off. The size of the offering will matter, as it will be seen exactly how much of the voting rights the owners are willing to sell and how much debt can be paid off after the offering. A small offering of only $100 million could pay off some of the debt, however, it is much less than the $1 billion IPO rumored last year.

Also, comparatively speaking, owning a sports team carries many risks not seen in other industries. For example, teams are largely dependent on a few talented players and injuries could hurt performance. As television revenue is tied to performance in the Barclays Premier League, this could mean the loss of millions of dollars in revenue.

Also, Manchester United notes in the filing that "any successor to our current manager may not be as successful as our current manager." Manchester United has experienced more than two decades of unprecedented success under current manager Sir Alex Ferguson, however as he is now 70, speculation is that he will step down soon. Soccer analysts fear that the inability to find a comparable replacement could also impact the team's performance.

Posted-In: News Offerings Previews IPOs Hot Trading Ideas Best of Benzinga


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