The much vaunted bid by the so-called Red Knights for Manchester United, expected this summer, may never see the light of day if structured as now proposed. The bid, which will amount to around £1.2 billion according to recent reports, consists of Knights’ money, a rights issue and £500 million in bond debt.
Although a bid is not yet on the table the proposal will see around 40 Knights putting £500 million into the summer offer for the club. United supporters – estimated at nearly four million in the UK alone – will also be asked to find at least £200 million, while the bid will retain the £504 million bond issued by the Glazer family in January.
The proposal, if structured as such, must overcome a number of significant barriers to success.
Although the Glazers have held a firm ‘not for sale’ stance in recent months it is commonly recognised that the standard route to profit in a leveraged buyout is through sale of the asset. After all the club’s parent company made just £6.4 million in profit in the last financial year despite the sale of Cristiano Ronaldo to Real Madrid for £80 million.
It is not without reason that the family has leaked their £1.2 billion asking price in recent weeks. Devised, no doubt, with the aim of creating an auction for the club between the Knights and other potential investors. After all, the Glazer family reportedly turned down an £1 billion bid from the club from Far East suitors last year.
Indeed, the bond issued in January had the sole aim of restructuring United’s finances so the Glazers can reduce their personal exposure through the Payment in Kind (PiK) loans currently attracting 14.25 per cent interest per annum. Refinancing bought the Glazers time to draw down significant reserves of cash from the club, ensuring the risk within the leveraged model is born by United itself.
Although there is good reason to believe the Glazers’ US property business is in serious financial ill-health the only voice the family will hear is the sound of cold hard cash. Whether £1.2 billion, including debt, is enough to bring the family to the negotiating table is open to question.
Should the Knights bid keep the Glazers’ bond issue in place, interest payments of £45 million per year until 2017 will follow. On the bond’s maturation the prospective owners must find £504 million to pay back the original principle.
Under the terms of the bond new owners must pay a 101 per cent premium on the bond on takeover – essentially a refinancing charge and re-issue of a new bond. Should the Knights redeem the bond early a 120 per cent charge is normally liable.
Eye-watering sums of money.
One route to early redemption is via a new rights issue, which would pay down the debt but dilute owners shareholdings by up to 40 per cent. Unliklu unless the Knights are the philanthropic type.
Moreover, any new shares issue by the Red Knights on the open market will raise the spectre of ongoing ownership – potentially opening a back door to a future leveraged purchase of the club.
This is all moot unless United supporters can find at least £200 million under the proposals. It’s an astonishing sum of money and probably highly unrealistic. While the Manchester United Supporters’ Trust (MUST) has seen membership rise to more than 150,000 in recent weeks, the free registration presents few barriers.
History says that United supporters will struggle to find the large sums of money required. Fans did not in 1991 on flotation, nor in 1998 when Rupert Murdoch’s much despised bid for the club lay on the table, nor in 2005 when the Glazer family finally acquired the club.
With ticket prices higher than ever, asking 150,000 MUST members to find more than £1,000 each is perhaps a stretch too far.
It places the current MUST strategy in a new, less favourable light. While the social media and billboard advertising campaign harnessed the genuine anger among United supporters it has generated not a dime towards a potential buyout. It never could, with paid MUST membership probably in the low thousands.
United supporters are right to ask what next of the organisation, which recently surveyed season ticket holders on renewal intentions. Will MUST openly call for a boycott of season ticket renewals to force the Glazers’ hand? Not so unless there’s a major change of strategy.
Working in the background during the Glazers’ tenure, MUST has achieved significant political clout. Indeed the Labour party recently committed to mutualism within football. If the manifesto promise sees the light, a legislative programme will have a real and lasting effect on both the beautiful game and United.
But until then MUST’s particular brand of militantism amounts to little more than hitting the beast with a major leaflet campaign.