Asia’s army of Manchester United fans might soon be able to show their support for the English football club in the stockmarket, if a bid to list the club in Singapore in the next few months goes ahead as planned.
According to sources, the US-based Glazer family who owns 100% of the club following a leveraged buy-out in 2005 has filed a listing application with the Singapore Exchange and on Friday mandated J.P. Morgan and Morgan Stanley as joint bookrunners for a planned initial public offering. The two US banks will work alongside Credit Suisse, which had earlier been given the role of global coordinator and will also act as a bookrunner.
In a move that suggests that the owners are keen to get a well-diversified regional spread of investors, the Glazers have also hired Hong Kong-based BOC International, Malaysia’s CIMB, Singapore’s DBS and pan-Asian investment bank CLSA as joint lead managers.
Manchester United is the most successful British football team of all times with 19 premier league titles and 11 FA Cup wins. And it has more than 330 million fans around the world, according to its own estimates. But importantly it has also turned its brand into big business.
In the fiscal year to June 2010, the club generated £286.4 million ($470 million) of revenues that came primarily from ticket sales, sponsorship and media/advertising sales. It is the growth of this brand that the owners will try to sell to investors. In that context, the company can be viewed as any other branded consumer retail company.
However, the attraction of the brand is clearly linked to the performance on the pitch and it is probably not a coincidence that Manchester United is looking to do an IPO while it is still basking in the glory of last season’s Premiership win. While the 2011/2012 season started just over a week ago, it will take more than a few months to determine who will be the top contenders this season. ManU, under long-time coach Alex Ferguson, also opened the current season with a 2-1 win in its first match against West Bromwich Albion. It will play its first home game for the season against Tottenham tonight.
A key reason why the Glazers are looking to sell part of the company that owns the team — the Red Football Joint Venture — is to be able to reduce its large debt. That would free up money for player acquisitions so that the team can continue to compete with big-spending UK rivals like Chelsea, owned by Russian oligarch Roman Abramovich, and Manchester City, which is backed by Abu Dhabi’s Sheikh Mansour bin Zayed al Nahyan.
According to its latest available accounts, Red Football JV had £590.4 million of net debt as of June 30, 2010 and it is paying about £45 million per year in interest costs on a £503 million bond that was issued in January 2010 to refinance outstanding bank loans. Most of the debt dates back to the LBO in 2005.
While the size of the IPO has yet to be determined, various media reports have talked about a deal size of about $1 billion and suggested that 25% to 30% of the company will be put up for sale. Sources say such numbers are “in the ballpark”, but stress that much will depend on how global equity markets perform in the weeks ahead.
Asian stockmarkets took another severe beating last Friday after a 3.7% drop in the Dow Jones index in the US overnight. Hong Kong’s Hang Seng Index fell 3.1%, erasing almost all the gains made since it hit a 12-month low on August 9, and is now down 15.8% year-to-date. Singapore’s benchmark index fell 3.2% to a new 2011 low. The index has lost 14.3% since the beginning of the year. Earlier in the week bankers had argued that investors are still interested in primary market deals as a way to rebuild their exposure and ensure they don’t miss out when the market recovers. But if the increasingly panic-like selling continues and the secondary markets remain under pressure, that could quickly change.
According to sources, Manchester United has an aggressive timetable in mind for its IPO and investor education might start as early as the second half of September. That would suggest the company is aiming to launch a formal roadshow in October, assuming a stock exchange approval is in place by then. In Singapore, it typically takes between four and 10 weeks to secure a listing approval after the application is filed.
The decision to list in Singapore instead of Hong Kong has surprised many commentators. The Hong Kong stockmarket is more liquid than its regional neighbour and, as the largest IPO market in the world, Hong Kong has also attracted quite a few large non-Asia companies to its ranks since early 2010, including global brand names like Prada, Samsonite and L’Occitane.
But as it turns out, Singapore was able to offer something that Hong Kong wouldn’t. According to sources, the Glazers want to be able to list shares with different voting power, which is something Hong Kong’s listing rules no longer allow. It is still unclear exactly what kind of share structure the company is planning, but supposedly the current owners want to ensure that they will be able to retain control of the team even if some family members choose to sell. According to one local media report, up to 70% of the company will be owned by Malcolm Glazer and his six children after listing, and their shareholdings could potentially be structured to include a right of first refusal with regard to each others’ stakes. This would be in line with statements earlier this year that the club is not for sale.
It seems Manchester United had sought a waiver from the Hong Kong listing rules to allow some form of differentiated share structure, but the Hong Kong Exchanges and Clearing (HKEx) is believed to have said no. The rule prohibiting a company from issuing different classes of shares in the same market has been in force for a long time and is intended to protect minority shareholders. Only one major company — Swire Pacific — still has two share classes as a legacy from before this rule was introduced.
Singapore doesn’t have an explicit rule against the issuance of differentiated voting shares, even though it isn’t common practice to do so in that market either. However, some companies do for example have preferential shares listed in Singapore.
The refusal by the HKEx to grant a waiver on this particular issue is interesting and shows that the exchange is not willing to compromise on certain issues to attract international listings. This should give those claiming that international companies are coming to Hong Kong partly because the listing requirements are less stringent some pause for thought. In the long run, this should be positive for the reputation of the Hong Kong market, even though the decision by a major sporting brand like Manchester United to list in Singapore does seem like a big loss right now.
To be sure, there might be other reasons for choosing Singapore, including the fact that the team has a particularly large and active fan-base in Singapore and the rest of Southeast Asia. Sources say it also wants the listing to have an Asia focus, as opposed to a China focus, which has been the case for most of the international companies listing in Hong Kong so far.
That it is choosing to list in Asia as opposed to London, where it was previously listed from 1991 to 2005, is not a big surprise, however. Close to 60% of its fans live in Asia and the region is expected to drive the brand’s growth through things like merchandise sales, Manchester United cafes and sponsorship. Asian companies currently sponsoring the team include Singha beer and telecom operators PCCW, Tri Indonesia, Telecom Malaysia and AirTel.
The team also makes regular summer tours to the region and has one Asian player in its main squad in the form of South Korean Ji-sung Park, who has helped to boost the popularity of the team in the region since he signed on in 2005.
Whether it will be able to turn fans into shareholders and, perhaps more importantly, attract investors who support entirely different teams on the pitch or, heaven forbid, might not be interested in football at all, will depend largely on the valuation. The $1 billion deal size speculated in the market last week would value the franchise at $3.3 billion, assuming a public float of 30%. That is significantly above the £790 million ($1.3 billion) that the Glazer buyout valued the team at in 2005 and also well above the $1.6 billion that a group of wealthy supporters, including Goldman Sachs economist Jim O’Neill, were offering to pay a year ago. Turnover has doubled since the Glazers took full control of the team, but the losses have also expanded due to the large interest payments. In the fiscal year to June 2010, Red Football JV reported a pre-tax loss of £108.9 million.
That said, fans have been upset by what they perceive as an unwillingness by the Glazers, who also own American football team the Tampa Bay Buccaneers, to invest enough money to get the best players. Not surprisingly the possibility of an IPO that could free up cash has therefore attracted a lot of attention since the plan leaked last week.
