Manchester United Seeks Double Valuation of Rival Clubs in IPO

The owners of Manchester United Ltd. (MANU), winner of 19 English soccer championships, are betting the club can complete an initial public offering that will make it twice as valuable as any other sports franchise.

The Glazer family is seeking an enterprise value of $3.8 billion for the 134-year-old team in tomorrow’s IPO, about $1.9 billion more than the value of Spain’s Real Madrid, according to data compiled by Bloomberg and Forbes. The $333 million U.S. offering would also make United about 10 times as expensive relative to sales as publicly traded European teams such as Juventus Football Club SpA (JUVE), while leaving the Glazers with almost all the voting control.

With 437 million pounds ($683 million) in borrowings curbing United’s ability to add new players to support striker Wayne Rooney, the Glazers risk further alienating fans already boycotting club sponsors by only allocating half the IPO’s proceeds to cut debt. United’s expansion of its iconic brand from Asia to North America, to the tune of 659 million total followers, may lose momentum if the club can’t outspend European rivals, Oxford University’s Tim Jenkinson said.

To justify the IPO price, “you’d hope it would be a bit of a growth story,” Jenkinson, a professor of finance at the Said Business School, said in a telephone interview from Oxford, England. “The Glazers’ motivation is to create a vehicle whereby they can pay down the debt over time and extract money along the way, and by structuring it the way they do, maintain control. None of this strikes me as being particularly positive for the club.”

Photographer: Alex Livesey/Getty Images

Wayne Rooney of Manchester United celebrates as he scores agoal during the Barclays Premier League match against Fulham, at Old Trafford in Manchester, U.K. Close

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Photographer: Alex Livesey/Getty Images

Wayne Rooney of Manchester United celebrates as he scores agoal during the Barclays Premier League match against Fulham, at Old Trafford in Manchester, U.K.

No Trophy

Manchester, England-based United and the Glazers, who bought the club in a 2005 leveraged buyout, together are offering 16.7 million shares, equivalent to a 10 percent stake, for $16 to $20, data compiled by Bloomberg show. This year was the first time United has finished a season without a major trophy since the year the Glazers bought the team.

Even after the sale, the Glazers will maintain almost 99 percent of the voting control, because the Class B shares they own carry 10 votes apiece, compared to 1 vote each for the Class A shares being sold in the IPO. The Glazers are selling half of the shares being offered, while the company is selling the rest and will use those proceeds to pay down debt.

Philip Townsend, a spokesman for Manchester United, declined to comment.

Manchester United chose a U.S. sale after scrapping plans for an offering worth as much as $1 billion in Singapore. As of yesterday, the soccer team had received enough orders for all shares being sold in the U.S. IPO, according to people with knowledge of the matter.

‘Emotional Buy’

“For the average retail investor, this will ultimately be more of an emotional buy with little underpinning in the financials or governance,” said Gerry Cardinale, a New York- based partner in Goldman Sachs Group Inc. (GS)’s private-equity group who helped the New York Yankees create a television sports network in 2001. “For many, being able to say that they own a piece of Manchester United may be worth the price of admission.”

The midpoint of the price range would value United’s outstanding stock at $2.95 billion, or 5.9 times estimated sales of 317.5 million pounds in the 12 months through June 30, according to filings. That’s about 10 times as high as the price-to-sales ratio of 0.6 for Copenhagen-based Parken Sport & Entertainment A/S (PARKEN), the owner of F.C. Kobenhaven in the year through March 31, data compiled by Bloomberg show. It’s more than 12 times as high as Turin, Italy-based Juventus’s multiple of 0.5, the data show.

Sports Franchises

Real Madrid, the Spanish soccer club founded in 1902 that has a record nine European Cup/UEFA Champions League titles, is the second-most valuable sports franchise at $1.88 billion, according to Forbes. The Yankees, which have won the World Series 27 times, are the world’s third-most valuable sports franchise at $1.85 billion, according to Forbes.

With about 70 million pounds of cash and 437 million pounds of borrowings as of June 30, United’s enterprise value at the top of the offering range is about $3.8 billion, according to United’s filing and data compiled by Bloomberg.

The $3.3 billion market value sought at the top end of United’s price range may be excessive because the headway the club has made into emerging markets, including 108 million followers in China, means there’s less of a market to tap, said Sverrir Sverrisson, a Copenhagen-based junior equity analyst at Saxo Bank A/S.

“Man United has a great potential, but they’ve already captured quite a lot of the market,” Sverrisson said. “It’s a growing market and has been, but it’s going to get a little bit tougher for Man United to get increased followers within Asia.”

Fan Boycott

Malcolm Glazer, 84, who took United private for 790 million pounds in 2005, financed the purchase with 374 million pounds of bank loans and 275 million pounds of notes sold to hedge funds, and has faced outcry from fans ever since. Fans that year burned him in effigy outside the Old Trafford home stadium, and a group called Manchester United Supporters’ Trust this week protested the IPO in an open letter calling for a boycott of products made by sponsors such as Nike Inc. (NKE) and General Motors Co. (GM)

GM will pay United $559 million through 2021 for the team to carry the Chevrolet logo on its jerseys starting in the 2014 season, according to an Aug. 3 filing.

Even with such big sponsorships, future earnings depend on continued on-field dominance, and the debt burden has constrained United’s ability to compete with other deep-pocketed clubs for top talent, said Saxo Bank’s Sverrisson.

The club has been outspent by neighbor Manchester City, owned by Abu Dhabi’s Sheikh Mansour bin Zayed Al Nahyan, and London’s Chelsea, owned by Russian oligarch Roman Abramovich, who is worth $15.1 billion, data compiled by Bloomberg show. Last season, City won the Premiership and Chelsea won Europe’s Champion’s League.

Debt Pressures

Cristiano Ronaldo became the most expensive soccer player in history when he was tranferred to Real Madrid from United in June 2009 for a record 80 million pounds. Later that month, Malcolm Glazer sold his majority stake in Zapata Corp. to Philip Falcone’s Harbinger Capital Partners.

The Zapata sale came two months after Manchester United’s parent company reported that net debt had grown to 649 million pounds in the year ended June 30, 2008. The team was debt-free before Glazer’s takeover, which angered fans who said his excessive borrowing threatened the team’s ability to pay top players.

The Glazers, who own the National Football League’s Tampa Bay Buccaneers and First Allied Corp., the Batavia, New York- based owner of 6.7 million square feet of U.S. shopping centers, were worth about $2.7 billion as of March, according to Forbes.

‘Step Behind’

“It’s really difficult in today’s environment to run a football club like a company, if not impossible, if you want to compete at the highest level,” Sverrisson, who covers consumer services, said in a phone interview. “You’re not able to increase the salaries. You’ll always be a step behind.”

Jefferies Group Inc., Credit Suisse Group AG and JPMorgan Chase & Co. are leading the U.S. offering for the soccer club, along with Deutsche Bank AG and Bank of America Corp. The club plans to list on the New York Stock Exchange under the symbol MANU.

United provided the number of followers in its prospectus, citing a study by Kantar Media. The total is an estimate based on the number of respondents in the study who answered, unprompted, that United was either their favorite team or a team they enjoyed following, the filing shows. The company is changing its name to Manchester United Plc before the IPO, according to the filing.

U.S. IPOs are scheduled to raise more than $1 billion this week, the most since Facebook Inc. (FB) went public in May. Bloomin’ Brands Inc. (BLMN), the owner of the Outback Steakhouse restaurant chain, raised $176 million yesterday, pricing a reduced number of shares below the marketed range. CKE Inc. (CK), the global hamburger chain with the Carl’s Jr. and Hardee’s brands, is scheduled to raise more than $200 million tomorrow.

To contact the reporters on this story: Lee Spears in New York at lspears3@bloomberg.net; Tariq Panja in London at tpanja@bloomberg.net

To contact the editors responsible for this story: Jeffrey McCracken at jmccracken3@bloomberg.net; Christopher Elser at celser@bloomberg.net

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