Thursday, 13 March 2014

Baron Capital's stake in Manchester United - getting the numbers right

This post is a brief apology for bad maths.

Earlier this week I noticed Manchester United had made a "13G filing". This is an American regulatory declaration required when an investor has taken a significant stake in a quoted company.

The filing said that Baron Capital Group Inc and various related companies and funds now own 9,581,636 "A" shares in Manchester United, 24.07% of the total number of "A" shares in issue.

I didn't bother looking up how many "A" shares there were in issue (something I had written about on this blog), but remembering that 10% of the total shares in United were available on the stock market, I assumed that these were all the "A" shares. I therefore tweeted:
Well I should have looked up the figures, because that isn't right.

There are actually 39,807,000 "A" shares in issue of which 16,666,667 were floated on the NYSE and the balance are owned by the Glazers. The "A" shares are themselves c. 24% of the total number of "A" and "B" shares in the company.

So Baron Capital owns 24% of "A" shares and therefore owns more than 5.5% of the club. What's more noteworthy perhaps is that the firm has hoovered up over 57% of the shares available on the NYSE, which goes a long way to explaining the strength of the share price in recent weeks.

Before anyone gets too excited, Baron Capital aren't looking to takeover United, they just think the shares are cheap. Are they right? I don't think so, but stock markets are always about matters of opinion.

Anyway, apologies from me for not looking things up properly. Apologies too to Bloomberg and the Associated Press who both quoted my incorrect calculation.

We should all be extra embarrassed for reporting that a 13G filing showed an investor had 2.4% of a company. Why? Because 13G filings are only used when an investor has bought more than 5% of a company. Ooops.

LUHG

2 comments:

Anonymous said...

I'm curious. How broad is your approach when making your general analyses? Do you take into consideration the wider perspective of the football industry and it's machinations and also the state the industry is in right now? Look at Real Madrid and FC Barcelona for instance. Right now the EU has placed a demand on the Spanish government to justify the seemingly preferential treatment that Spanish football clubs in general and RM and FCB in particular, are getting financially. I'm talking about the fact that these clubs have owed serious amounts in terms of taxes and the government has been giving them a relatively free pass when you compare with the way other businesses have been treated. This had even prompted clubs like Bayern Munich to go on record with complaints stating how they and most other clubs in Europe have to pay their taxes on time which gives RM and FCB a cash advantage in the transfer market. Especially when you consider the reality that, the EU "enquiry" is also seeking clarification on the basis used by financial institutions in funding and bailing out RM,FCB etc.

There are allegations of a politically engineered advantage and preferential treatment of Barça and Real Madrid given how the institutions funding them have serious political ties. Effectively this gives a picture of just how much Spain as a government and economic entity is aiding Spanish clubs to compete on the transfer market. Then you have leagues like Serie A which are generally in serious financial struggles. Heavily in debt and losing value every quarter. Then the unprofitable models employed by the likes of Chelsea,PSG,Monaco,Manchester City,Zenit St Petersburg. None of whom are enjoying financial success. So what exactly do the owners of these clubs stand to benefit from these acquisitions and more importantly just how sustainable are these models in the long term?

Anonymous said...

Finally, football in general is not very profitable from a club perspective. Look at the profits made by football clubs vs that made by basketball teams or American football teams. So if you're a business man or woman or company looking to invest in football,it seems the most logical approach to take the leveraged takeover model and go for the long term value approach. In my view the Glazers seem to have had a plan of acquiring the club at very low personal cost and effectively using leverage to obtain ownership. The model seems to be a long term approach of then building the value of the business in order. In other words their model seems to be based on making MUFC a very valuable global brand in the long term. This means if by 2020 the value of the business is say $10bn then you can only imagine how much their 90% shareholding will be worth. This means the debt which currently stands at less than $500m if I'm not mistaken and is comparable depending on which version of debt is in use, to clubs like Madrid and FCB and even Arsenal,is not as operationally detrimental as everyone seems to suggest. Why? Because,as the value of the business grows,revenues naturally tend to as well and this makes the already manageable debt,easier to manage. Reducing the debt to zero is nearly impossible and ultimately not very prudent business wise not just for United but for almost any football club. The point here is,it is actually in the best interests of the Glazers to make sure their business succeeds on and off the pitch. They will definitely do all they can to make sure of it. This means they will avail funds for transfers as they have actually done,but be prudent enough to follow a more sustainable model. Chelsea owe Abramovich nearly $1bn. What financial gain has Abramovich gained from this? Questionable. He doesn't charge interest for this debt because he already knows the club has zero capacity to pay. So say after 10 more years of profitless business,who is to say he won't get tired of literally sponsoring the club with very little financial gain? Effectively the club is at the mercy of the owner.

But at United,the Glazers lost very little of their own money and can afford to take a very long term and much more sustainable plan knowing they stand a good chance of actually getting significant profits. We are actually not at the mercy of the Glazers and have a much better future forecast than most football clubs out there. I admire their model of business in the chaotic and unstable industry of football. Just my,very long and disorganized view.