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Manchester United to float on Singapore’s exchange | Owen Gibson

The anti-Glazer rebellion has lost momentum as Manchester United’s commercial drive is set to continue in Singapore

Three images from recent weeks will cheer the Glazer family and their phalanx of bankers and advisers as they finalise ambitious plans to float a large stake in the club on a stock exchange 6,789 miles away from Old Trafford in Singapore.

One is the incongruous sight of Libyan rebels advancing on Tripoli wearing replica shirts, underlining the extraordinary global reach of the Premier League champions. Second, fleeting shots of United players donning tracksuit tops bearing the DHL brand, for which the logistics firm was prepared to pay an extraordinary £10m a year. Third is the sight of Sir Alex Ferguson’s youthful side demolishing Arsenal 8-2, as if to send a signal about the club’s ongoing ability to compete with the cream of Europe on the field.

After being put on a “fast track” by the Singapore stock exchange it is believed the Glazers, who bought the club in a £790m debt-financed deal in May 2005, are preparing to launch the initial public offering (IPO) prospectus and roadshow that will market the idea of owning a minority stake in the club to Asian investors. Some senior City figures are cautious about whether institutional investors will be interested but believe that will not stop the issue being fully subscribed.

While United would not comment, sources in Asia suggest the goal remains to raise up to bn (£614m) by floating a stake of up to 30% in the club. Other sources close to the discussions have confirmed that the float will involve a dual share-class structure that waters down the voting rights of those who buy them and allows the Glazers to maintain control.

United fans already well versed in the finer points of UK takeover law, media ownership rules, leveraged buyouts and the junk bond market, must now bone up on the regulations of a fast-growing Singaporean stock exchange desperate to attract globally recognised brands.

Since buying the club, the Glazers have engaged in a series of complicated financial manoeuvres in order to respond to events, not least the global downturn. They were forced to refinance their initial borrowings with bank loans and high-interest “payment in kind” (Pik) instruments.

The £500m bank debt was paid off with the proceeds of the 2010 bond issue, under the rationale that it offered more long-term certainty. The Glazers pressed on even though it sparked a huge wave of protest and came with huge one-off costs attached that pushed the club to a pre-tax loss of £79.6m last year.

Fears that the Glazers would suck upwards of £100m out of the club to pay off the still spiralling £240m Piks were never borne out. Protesters claim it was due to their pressure, United insiders insist it was never on the agenda. Then it emerged the cash had been found to repay the Piks from a mystery source, removing them from the balance sheet of United’s holding company. Many believe they were merely refinanced at one step removed and suspect those loans could be paid off with some of the money raised by the float.

Now it appears they went through all that pain only to change course 17 months later, using the proceeds from the IPO – with all the attendant charges and scrutiny that will attract – to pay down the bond debt.

Meanwhile, persistent takeover talk suggesting a bid from Qatar has come to nought. The suspicion was that they would not meet the Glazers’ £2bn-plus asking price. If they get the IPO away at the figures suggested, it would set a market price at or around that level.

Singapore has been chosen, according to those close to the deal, because it better reflects Manchester United’s pan-Asian success story. Analysts say that if the larger Hong Kong exchange had been chosen then there might have been more focus on the relative failure of Premier League clubs to crack China, given issues with piracy and the march of the NBA. As well as paying down debt – a calculation that must be calibrated so as not to affect the share price too much – the proceeds of the float will be used to further grow their Asian commercial operation.

But another reason is potentially as significant. Those taking up the offer will have to buy one non-voting share for every voting share. Such a dual share structure is frowned upon by many institutional investors in the UK and was a feature of recent criticism of News Corp by shareholders at the height of the hacking scandal.

A spokesman for the Association of British Insurers said: “From an investor’s point of view, the reason you wouldn’t favour a dual share structure is because you would not put capital into something that didn’t mirror the same level of control. It is highly unusual to do so in the UK market.”

Respected corporate governance consultancy Pensions Investment Research Consultants said it “approves of the ‘one share, one vote’ structure for companies’ share capital, and generally disapproves of dual class stock structures which have varying voting and dividend payments rights”. A spokesman added: “In our view, shareowners who have the same financial commitment to the company should have the same rights. Where a company is creating a new class of shares, or seeking an increase in the number of shares of the class of stock that has superior voting rights, we will usually oppose the capital restructuring.”

Such dual structures have generally been used by family-owned companies looking to raise money but retain control – see News Corp, Daily Mail & General Trust – or by dotcom businesses so sure of their appeal that they can afford to do so – see Google.

Sources argue the family need to retain control due to the peculiar nature of a football club’s business. Long-term investment decisions may not be in the best immediate interests of the shareholders, they say, and decisive action is often required in the transfer market.

Ferguson has previously praised the Glazers for their swift decision making, citing Wayne Rooney’s pay negotiations as one example. But it is hard to see how that would change if a minority stake was sold. To outsiders, it looks like a means of maximising returns while retaining control. For those who have long protested against the Glazers, it puts the success of the share issue in doubt.

“The whole thing is looking a bit precarious especially if the rumours of non-voting shares turn out to be true. They were already pushing for a really ambitious valuation so I can’t see how that looks attractive to any smart investor and we have no reason to believe the Asian market investors are any less smart than those in the UK,” the Manchester United Supporters Trust chief executive, Duncan Drasdo, said.

“As you’ll be a minority investor in a company under their control you can only be looking at it from a direct return on investment point of view. It’s difficult to see how it will be as attractive as the bonds as an investment. What’s the advantage to the club? If they offer higher-yielding non-voting shares is that any better than the bond debt for the club?”

But others, including some of those involved in the ultimately ill-fated Red Knights takeover, believe that the Glazers will attract enough interest. There were also doubts ahead of the bond issue about whether it would succeed – in the end it was twice oversubscribed.

It has left the supporters groups that have protested against the Glazer regime, a campaign that reached its high point at a Champions League tie against Milan where an Old Trafford swathed in green and gold rocked to chants of “Love United, hate the Glazers”, in a tricky position. Since then a combination of success on the field, with another Premier League trophy and a third Champions League final in four years, and the ability of Ferguson to fashion another youthful, exciting side on a relatively modest budget has dulled the atmosphere of rebellion.

While large pockets of resistance remain outside Old Trafford, at the first two home matches of the season it has been notable that the free red scarves doled out by new sponsor DHL far outnumbered any rare sightings of the green and gold that came to signify the movement at the point at which a takeover by the so-called “Red Knights” looked a realistic possibility.

On the one hand, they are keen to see the debt paid down and for the club’s ownership base to be widened. On the other, the Glazers look set to retain overall control and eventually walk away with a handsome profit.

Other troubling consequences could include the fact that the rights issue may give the Glazers an excuse to start paying themselves dividends, something that MUST and other protest groups campaigned long and hard against when the bond issue was launched.

“Our first priority is for them to pay down all of the debt using the IPO. That is the biggest issue for many supporters. I don’t see it as the club’s debt because it was their acquisition debt,” Drasdo said.”I think the IPO is the first phase of their exit, but it is the crucial phase in that whatever happens with the debt at this stage will solidify the position for the future and whoever is holding any residual debt will be responsible for the interest and ultimately repaying it. The important thing is to clear the debt first, then we can look at widening share ownership.” The Glazers have been blessed with Ferguson’s ability to reshape his squad and the acumen of the chief executive, David Gill, at a time when they have had to juggle their finances. At the same time, the club’s London-based commercial unit, overseen by the chief of staff, Edward Woodward, has helped vastly increase revenues.

When full-year results are released on Thursday, they will show United’s commercial revenues have exceeded £100m for the first time. They will also reveal record operating profits of more than £100m and, in contrast to last year’s record loss, a net profit. Club executives are expected to argue the figures, together with a healthy bank balance, bear out their claims that they can weather the £45m interest repayments on the £500m bond debt and continue to compete on and off the pitch.

Historically, overseas income contributed just 3% of the club’s revenue. But that underplays the extent to which overseas customers have driven the growth of media and commercial revenues. As the amount brought in by the Premier League for overseas broadcasts has risen exponentially, so too has the amount that the biggest clubs in the world can charge to be associated with them and reach those eyeballs. Manchester United hold details on 10 million fans across the world and have 1 million credit customers in South Korea alone. More than 22 million might watch a live match in Indonesia, global linear TV figures are up 36% on last year, and the club claims to have 333 million fans worldwide and 190 million in Asia alone.

The £40m over four years brought in by the DHL could just be the start, is the bullish claim. There is a well-founded belief that existing contracts with Nike (£23m) and Aon (£20m) can be doubled in value when they come up for renegotiation and new categories can be created in a range of regional markets.

But the central point of the campaigners – that £434m in interest payments and fees has flowed out of the club since 2005 that could have been invested in players, keeping down ticket prices or facilities – stands. They continue to hope this might be the beginning of the end for the Glazer regime.

“I just look at what is taken out and what debt is on the club. The thing that drives people is whether there is an opportunity for change. When the bid from the Red Knights failed to materialise in 2010 the fervour died down,” Drasdo said. “What might be interesting is to see how this flotation changes perceptions in that respect. People will see that this is the beginning of an opportunity and it is surely a matter of when rather than if they sell the rest of their shares and to whom.”

Meanwhile, those marketing the IPO will argue United have barely scratched the surface of their commercial potential. Much will depend on whether they can persuade investors to believe them. A sponsorship deal with Malaysian crisp brand Mister Potato, yet to be announced and one of dozens that have been sealed since the 2008 overhaul of commercial operations to bring names from Concha y Toro to Kumho Tyres on board, will be part of that story.

It is yet another reminder of the changing nature of Premier League business models that a Malaysian snack, a Chilean vineyard and a South Korean tyre manufacturer are as important, if not more so, to United’s future success as those streaming on to the Stretford End. © Guardian News & Media Limited 2011 | Use of this content is subject to our Terms & Conditions | More Feeds