A lot is pointing towards this process reaching its climax in the coming week or two. A few thoughts.
What is happening in the process?
Overall, evaluating the value of MUFC is not hard, nor does it require a due diligence from a broader point of view. The Manchester United plc reports using the IFRS standard which is established by the EU for all companies listed on a regulated market. Besides, financing agreements have also been made available. While a bidder of course will want to perform its due diligence and verify key aspects of the club as well as taking part of the latest up to date financials -- both Ineos and the Qataris have for a long time been able to evaluate the target of this process.
The Raine Group has performed three rounds of bidding, first the indicative bid and then two de facto bids. These bids are made for the Glazers' shares of the club (more on that later). All -- three -- parties are advised by top advisers and are more or less on equal footing in these negotiations. There have been talks about the Glazers playing the bidders, threatening keep the club, and what not. Those aspects should perhaps not totally be disregarded -- but not far from it. If you engage JPM or Goldman Sachs or players like that for a multi-billion transaction -- you won't be pushed around in the negotiations. What is the point of a third (fourth) round of bidding? The next point is probably pointing at the highest bidder, and telling the other side that they will be out of the running in 24h if they do not counter that offer. After that, you should have a preferred bidder.
What remains after a preferred bidder is appointed?
Whomever buys the club needs to be approved by the PL. That process can be started before a takeover is executed.
Ultimately, buying the Glazers' shares can be done through a simple transaction note. There will be no meaningful reps and warranties given that it is a public transaction. The buyer will undertake to replace the Glazer siblings on the board, not much more. Hence, the club could potentially have a new owner within weeks.
But what about the remaining 31%? Well, it is here it gets a bit tricky -- and this is a topic that ultimately will depend on Cayman Island cooperate law. First of all, must you buy those shares if you buy the Glazers shares? No. In the UK and all of the EU, anyone acquiring more than 30% of the votes in a company must make a so called mandatory bid for the remaining shares. The reason for this is that anyone buying a share in a listed company should be able to assume that the company will be run in a way that is best for all shareholders. If someone comes in and buy a controlling share, the minority owners must be given an opportunity to exit their investment in light of the new circumstances. This is -- not -- the case on the Cayman Islands.
So why buy the remaining shares of Manchester United plc -- if you don't have to, and since you would controll the club anyway by just buying the Glazers' shares? That is a good question. There are no guarantee that Ineos for example would want to buy those shares. Why not invest that money into the club instead? There is however one big advantage of buying the minorities' shares. If you own all shares of a company, you can wheel 'nd deal with it anyway you want. Lets say you want to lift land owned by the club out of the club and develop it in a separate entity -- its just a little paper work if you own all shares. If there are 150,000 minority shareholders, you better make darn sure that you pay market value for any asset you transfer from the club to another company. And even if you do all you can -- you could still see some litigation. It is impossible to know how the parties would act, but from my view point it is natural to assume that the Qataris would want 100% of the shares while I don't quite see the upside for anyone with Ineos sucking up the shares listed at NYSE.
But anyway -- if you want to buy the minority shares listed at the NYSE -- how is it done? Well you cannot get each and every 150,000 (just picking a random number) minority owner to sell their shares to you. Hence there are mechanisms in place to enable taking a company private. As I understand it, we could either see (a) a public tender offer to the minority (someone sends out a press release and say 'If you want to sell your MUFC plc shares, fill out this form, and we will buy them'), and if bidder owns 90% of the shares after the tender offer, it gets the right to redeem the outstanding shares, or (b) through a take private merger. Given how majority owner friendly Cayman Island law is, I think (b) would be the method used. Ineos or the Qataris create a BidCo (Special Purpose Vehicle (SPV)). That BidCo proposes to merge with Manchester United plc. In the merger, the owner of the BidCo gets 100% of the shares in Manchester United plc and the current shareholders of MU plc gets 100% cash. Takes say a month or two to execute. If a minority shareholder in the club thinks the terms of the merger were worthless -- they can take it to court and ask for more pay. Some surely would. If you want to acquire 100% of the shares -- is it better to first acquire Glazers's 69% and then merge or does it make more sense to also acquire the Glazers' shares through a merger? This could impact the arguments of the minority owners going to court asking for more pay. I can't provide any input on if it would matter, but I would bet on that given how flexible Cayman Law is, it doesn't.
What happens to the debt?
As soon as someone takes control of the Glazers' shares of the club -- it will trigger the so called Change of control-clauses of the plc's debt agreements. This means that within stipulated time frames, that debt becomes immediately repayable. So in terms of the actual debt agreements, the Glazers debt will not survive a takeover. The buyer can either (a) pay back the debt, (b) refinance the debt in the name of the club, or (c) refinance the debt in a company higher up in the buyers' group. When Ineos say that they won't put any new debt on the Manchester United plc -- I think it would sound odd that they would engage JPM and GS to issue a bunch of new bonds in Manchester United plc. I think they would do that higher up in the Ineos group. But there is some uncertainty there.
The Qatari would probably cash the debt. I think the talk about Qataris only using "cash" is a bit irrelevant. Qatar's GDP to debt ratio is 40% which is low for a country. Ineos' debt ratio is probably a few times its turnover, which is normal/on the higher side for the average company, but not high for a company with a M&A strategy.
Who will win the bidding?
I want to add one word of caution here, if anyone is absolutely convinced that the Qataris will win the bidding. A group of people in Qatar is driving this project. Right? No matter what anyone says, its common sense that they don't have £5bn burning a hole in their wallet. The bid will be financed with funds which the royal family controls. Hence, someone is setting a budget for the bid. We don't know what that budget is. It could be 10bn. It could be 5bn. I don't think its far fetched to speculate on that someone gave the green light to the entire project -- as long as the price wasn't crazy. You can have 8bn, 5bn for the club and 3bn for the work after getting it. If they want 100% of the shares, and Ineos would settle for 69% -- Ineos wouldn't have to pay absurd money.
I have said from day 1 that the Qataris are the favorites. I would still bet on them if I had to bet, but I wouldn't bet the house on it.
What about Zilliacus?
The only way he has a shot is if he is fronting the Saudis.
Thank you for taking the time and effort for this!
