Friday 10 August 2012

The MUFC IPO - why the club won't benefit for over two years...

So the Manchester United IPO has finally happened. Having failed in Hong Kong and Singapore, the Glazers and their increasingly desperate bankers ditched their own ludicrous $16-20 per share price range and the shares have limped on to the NYSE at a still very, very aggressive price of $14 per share.

The whole saga has been a grubby and unedifying spectacle in our club's history that does very, very little indeed to improve the club's finances. The whole exercise has only been undertaken to help the Glazer family with their cash flow problems.

From the latest SEC filing we have confirmation that at the lower issue price, the club will receive net proceeds (after underwriters' discounts and commissions) of c. $110.3m (around £70.7m).

The club will use all this $110.3m to repay $101.7m face value (£63.6m) of the 2017 US$ notes at a price of 108.375% of nominal value.

These US$ notes pay 8.375% interest so the annual saving before tax will be:

£63.6m x 8.375% = £5.3m per year

Because interest is tax deductible, this reduction in interest paid will increase taxable profits. As a consequence of the IPO, United will pay US Federal Income Taxes at a rate of 35%. The net interest saving  after tax will therefore be:

£5.3m x (1 - 0.35) = £3.46m per year

This net saving is the equivalent of the matchday income from one game at Old Trafford. It is just over 1% of the club's annual revenue and around 3-4% of EBITDA.

Before any United fans begin celebrating this tiny saving, there is a further sting in the tail.

The prospectus informs us that the club, and not the family, will bear the expenses of the IPO. From page 151 we can see that these expenses total $12.3m (c. £7.9m).

With so little debt repaid and United bearing the £7.9m of expenses, it will take until the end of 2014 for the club to even break-even from the IPO, let alone benefit financially.

And the Glazer family? They receive their $110m straight away.

That's "Glazernomics" folks.....!