Manchester United’s snail-pace M&A saga may yet erupt into an all-out scrap. Hedge funds are laying the groundwork for a legal fight if the $3 billion soccer club’s controlling Glazer family tries to shut them out of any sale. The club’s relatively muted public-market valuation, compared with recent similar deals, suggests such takeover shenanigans are likely.
The Glazers, who took control of the northern English team in 2005, effectively put it up for
sale last November, and are hoping for a
valuation of at least 5 billion pounds ($6.3 billion), according to the
BBC. Since then Qatari Sheikh Jassim bin Hamad al-Thani has
bid around that level, which likely includes Man Utd’s roughly $900 million of net debt. Yet a rival approach from English chemicals tycoon Jim Ratcliffe has investors in Man Utd’s New York-listed shares worried.
One hedge fund with a large stake in the club is making legal preparations in case Ratcliffe launches an offer that involves only buying the Glazers’ super-voting Class B shares, a person familiar with the matter told Breakingviews. Such an approach would effectively exclude minority investors from the takeover. A separate person familiar with the situation told Breakingviews that hedge funds were already studying past precedents under Cayman Islands law, where Man Utd is incorporated, to figure out how they might build a case against any manoeuvres by the Glazers or Ratcliffe.
Man Utd’s dual-class share structure is the concern. About two-thirds of the total equity comprises Class B shares, which carry 10 votes and are held by the Glazers, while the remaining third is made up of publicly listed Class A shares, which carry one vote and are held mostly by institutional investors. The Financial Times
reported recently that Ratcliffe and the Glazers were considering a deal in which the billionaire would buy enough Class B shares to control the club but without making an offer for other investors. The Glazers could even seek to change the club’s articles of association to make sure Ratcliffe’s acquired shares retain their super-voting rights, according to the report.
The hedge funds have some grounds for their pushback. Manchester United’s 2012 initial public offering filing
notesthat Cayman Islands law gives shareholders the right to challenge deals and to receive “fair value” for their shares as determined by a judge. The Cayman courts in October ruled in favour of minority shareholders in a take-private case that lawyers at Loeb Smith
called a landmark decision.
But that assumes there’s actually a deal for Class A shareholders to vote against. This might not be the case if Ratcliffe simply takes control of the club through a bilateral transaction with the Glazers. Another risk is that Ratcliffe lacks the money to rebuild the club's ailing Old Trafford stadium, meaning he would have to lump more debt onto the club to fund the much-need project. And there’s no guarantee he would maintain the Glazers’ record of paying dividends, meaning the minority investors could end up with shares that are worth much less than they are now.
If anything, the Man Utd share price reflects this pessimism. Chelsea Football Club’s sale to a consortium led by U.S. billionaire Todd Boehly valued the West London side at 5.7 times trailing revenue. Man Utd is only trading at just over 5 times its sales from the last financial year. That suggests investors are pricing in a relatively high chance of a Glazer side deal, and a low chance of hedge funds successfully challenging it.
