Tuesday, 18 May 2010

The £437m of Glazer costs - full sources

[Now with links to all relevant documents.]

Last week the Manchester United Supporters Trust (MUST) asked me to supply up to date figures on how much the Glazers have cost United since they took over in 2005.  For completeness I thought I’d post the numbers on this blog along with a complete list of sources for the figures.

“RF” refers to Red Football Ltd
“RFJV” refers to Red Football Joint Venture Ltd

Source note
RF takeover fees and expenses
2006 refinancing:     RF bank debt financing costs
                             RF senior facility repayment penalty
                             RFJV prefs repayment penalty
2010 Bond issue costs
Total professional fees
Loss on interest rate swap
Cash interest paid:             to 30 June 2009
                                       Est year to 30 June 2010
Total cash interest paid
Rolled up PIK interest:        to 30 June 2009
                                      Est year to 30 June 2010
Total rolled up PIK interest

Management and consultancy fees
Loans to Glazer family members
Total costs

Edit 20:32 19th May 2010:

Some extra information and clarifications following comments received:

The information is divided into RF and RFJV costs. This is deliberate so those who don't agree that RFJV costs will be paid by United can exclude them from the calculation.

One reader has correctly pointed out that the £10m of personal loans to Glazer family members is not an accounting "cost". I included it as it represented a cash outflow from the club. Let's hope they can repay the loans.

The 2006 refinancing costs are too low. I had estimated them from the two companies's accounts. The investment memorandum for the 2006 banking facilities (“Sources and uses of funds” table page 15 of pdf) shows a total cost of £29.1m vs. my £24m estimate.

People have asked for a comparison with the plc.  In the five years to 2005, the plc received net interest income of £3.9m.  Dividends during this period totalled £38m (assuming the final dividend for 2005, which was never paid, increased year on year by the same % as the interim dividend).  So the net cost of interest and dividends for the final five years of the plc was c. £34m.

If we are making comparisons, it would be churlish not mention the one saving that the Glazers’ capital structure brings, corporation tax.  United pay no cash tax because the group interest is high enough to fully offset taxable profits.  Since 2006, this has saved c. £86m of corporation tax that United would otherwise have had to pay.

[i] Total acquisition price inc fees and expenses (from RF Investment Memorandum July 2006) less value of equity acquired (from RF Offer Doc May 2005).
[ii] Calculated from financing costs annual amortisation charge note 17 RF accounts to June 2009.
[iii] Note 31 RF 06 accounts.
[iv] Note 31 RFJV 06 accounts.
[v] 2010 bond prospectus p43 "Use of Proceeds".
[vi] Ibid.
[vii] RF “Interest paid ” 14 mths ending 2006 and 12mths ending 2007, 2008 and 2009.  From RF annual accounts consolidated cash flow statements.
[viii] RF H1 results 2009/10 plus total bond issue (current FX rates) £537m, weighted average coupon 8.55% applied for six months.
[ix] £202.094m of PIKS at 30 June 2009 less £2.504m of unamortised financing costs plus a further 10 months interest at 14.25% pa compared to the £138m initially issued in August 2006.  From note 17 RFJV 09 accounts.
[x] 2010 bond prospectus page 100 “Related Party Transactions”.
[xi] Ibid.