July 6 (IFR) – Soccer might not have conquered the United States just yet, but Manchester United’s plans for its IPO have revealed the club will reap some major advantages by getting into the US market.
The world-renowned football club’s American owners, the Glazer family, filed a prospectus this week for the US$500m listing on the New York Stock Exchange.
And while that follows aborted attempts to list in the UK, Hong Kong and Singapore, the outlines of the US proposal suggest the Glazers likely will be able to keep a tighter grip on the club than would have been possible by listing elsewhere.
The owners established two classes of shares with different voting rights to ensure that they retain control even as existing shareholders see their stakes diluted.
Class A ordinary shares carrying one vote will be sold in the IPO, while the Class B shares, which convert to A shares when sold to non-affiliates of existing holders, will carry 10 votes.
While the holders of B shares own at least 10% of the company, they will control 67% of the votes — and ensure new investors can never hope to wrest control away from the Glazers.
The dual-class structure is accepted in the United States — and was seen in the recent Facebook IPO — but is not welcomed by European investors.
Perhaps even more eye-catching is that the club, one of the best known sporting brands on the planet, is coming to market based on numbers that are out of date.
US guidelines say that companies launching an IPO should do so with statements no older than 12 months, though an exception of up to 15 months is allowed under certain circumstances.
The most recent audited financial statements in the Manchester United prospectus are dated June 30 2011.
The exception is available if the company is not required to produce fresher numbers in another jurisdiction — and if complying with the 12-month cutoff is “impractical and involves undue hardship”.
Executive vice-chairman Edward Woodward made exactly this claim in a letter to the SEC this week, but at least one major UK institutional investor is sceptical about the hardship claim.
“Listing with numbers that are so stale is very concerning,” said the investor. “We have rules in the UK and Europe that would not allow this – good rules to stop messing around with accounts.”
United has included summary financial data for the nine months to March 31 2012, with comparative data for end March 2011, but these are unaudited.
The dates also sow confusion, as the end of the English football season in May triggers significant receipts, making it hard to compare numbers other full-year tallies ending in June.
United’s cash position at March 31 2012 was just GBP25.6m, for example; at the end of June in 2009, 2010 and 2010, that figure was more than GBP150m.
Accounts are deemed stale 135 days after they are dated — the maximum length of time that an auditor will stand by them — and stale accounts can be a serious problem.
Last year, the US$10bn IPO by Glencore was completed using accounts that had just exceeded the 135-day period. A few weeks later, the company posted disappointing results, and its share price has suffered since.
Moreover, the question of the dates could have particular significance when it comes 2012. Unlike in recent years at the extremely successful club, this year Manchester United missed out on many of the most profitable opportunities.
It failed to reach the extremely lucrative knockout stages of the Champions League, unexpectedly lost the Premier League title, and also did not reach either domestic cup final.
It is possible that Manchester United could rush to produce the full-year numbers to 2012 if the deal runs into September, but there is no requirement to do so.
Bankers refused to give any detail on possible timing, but a launch is still likely this month as the Glazers filed the first version of the prospectus on May 3 and have updated it twice since.
“It is a significant year,” said the institutional investor.
“They have tried to list in the UK and failed, in Hong Kong and failed, in Singapore and failed. It is a sign of extraordinary pressure to now launch this.”
AN INSIDE ‘JOBS’
As the club’s revenues are below US$1bn, it can file confidentially with the SEC under the JOBS Act as an “emerging growth company”. The JOBS Act also means the company can pre-market to investors before launching bookbuilding.
Manchester United had eyed deal proceeds of US$1bn for its Singapore IPO. While the SEC filing includes a US$100m deal size, the final transaction will be far larger. Bankers involved suggested that the free-float could be as high as 80% and the deal could total around US$500m.
Jefferies is lead-left in a bookrunner group also comprising Credit Suisse, JP Morgan, Bank of America Merrill Lynch and Deutsche Bank.
The base deal is expected to be entirely primary, with the secondary component coming in the greenshoe. Proceeds will be used to repay US dollar debt due 2017 with a coupon of 8.375% at 108.375%, and sterling debt paying 8.75% at 108.75%.
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