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What the IPO floatation really means for Manchester United

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The wonderful financial blog, The Swiss Ramble posted this new story on Manchester United. It has lots of interesting content and looks into great depth how the proposed floatation could effect the clubs finances. Honestly, this is MUST READ MATERIAL!

For those with time constraints, I have tried to pick out some of the more important points that the article makes.

There have been reports of $100 million (£64 million), but the reality is that this is only a placeholder for the filing. No details have been provided for the number of shares, or the price of the shares, so we cannot calculate the amount of money to be raised yet.

Given that the stated objective is to reduce the club’s debt (currently £423 million), it is likely to be much more than the nominal $100 million, as there would be little point in making all this effort to reduce debt by just 15%. There has been speculation that the amount raised will be $500 million and might even be as high as $1 billion, depending on investors’ appetite for the offering.

The article also suggests that the money raised from this floatation will NOT go straight to the Glazers, and that no dividends will be paid out (*). The money raised will help reduce the debt.

(*) The wording, in the 300 or so page document that the club filed that it does not intend to pay dividends. The wording means that the Glazers may re-consider this.

Given the pledge to use the IPO proceeds to reduce debt, this is undoubtedly positive for the club, as it will free up funds to boost the manager’s firepower, both on transfers and wages. Instead of spare cash being wasted on interest payments (at a steep 8.5%) and bond buybacks, which in total cost £71 million in the nine months up to 31 March 2012, instead it could be used to compete with the likes of Manchester City and Chelsea.

The Swiss Ramble

Pretty simple (Even I understand this).

The blog then considers how much the Glazers may have cost United, how much money has been wasted. I would make sure you are sitting down......

The money wasted in the Glazers reign is now estimated at £553 million, comprising £295 million interest payments, £128 million debt repayments, £101 million for various bits of financial re engineering (fees for takeover, refinancing, interest swap termination, bond issue and IPO) and £29 million payments to the Glazer family via consultancy fees and dividends.

The Swiss Ramble

That is a staggering amount! Sure, the Glazers haven't done a bad job, if you were to compare what Liverpool's previous owners done to their club (For instance, although we went trophy less last season, we were about a minute away from retaining our PL title. Liverpool were where exactly?). But what would have been had Sir Alex Ferguson not been at the club. What other manager would have been able to keep the club successful, while running the club on a far lesser budget than our rivals, despite generating far more turnover than them? Questions like these really make me fear for when SIr Alex leaves the club.

So, there are just a few small exerts taken out of The Swiss Ramble's wonderful piece. Again, if you have the time (it is quite lengthy), it is well worth a read in full, as there is much more content than these small quotes.