Owning a Piece of Manchester United: The Tale of A Delayed IPO

Manchester United’s planned (but delayed) $1 billion initial public offering in Singapore will adopt a two-tier share structure, as the record 19-time English soccer champion seeks to cut debt that has fueled fan protest.

“The deal is on. It is in Singapore.”

United chose to list in Singapore over Hong Kong, which was the top venue for listings globally for two years running, highlighting the global competition among bourses to woo top brands and how corporations will shop for the venue with the most favorable listing terms.

The Singapore Stock Exchange (SGX), like the U.S., allows dual-share structures, one with voting rights and one without, which allows United’s owners, the U.S.-based Glazer family, to effectively retain control of the team. The Hong Kong Stock Exchange (HKEX), on the other hand, banned dual-share listings in 1991 and refused to give United a waiver. Airline-to-property corporation Swire Pacific is the only exception in Hong Kong and has two classes of shares, a legacy of the colonial era.

However, it seems that this is not the main reason why Singapore was chosen over Hong Kong. Alex Tamlyn, a partner at law firm DLA Piper, commented that in choosing Singapore, Manchester United has flown to greater liquidity, lower regulatory burden, and higher valuation. Furthermore, the club’s investors are understood to have considered Hong Kong’s investor base too narrow, and were eager to prove that United was not just a China-focused franchise.

Asia is thought to be the prime place for United’s listing, given the sport’s rising popularity in a region where it has 190 million fans. Indeed, re-listing in London would reduce the sale proceeds available for reducing United’s gross debts of more than £500 million.

To vote or not to vote?

The dual-share structure is often regarded as inequitable and has raised concerns about corporate governance at United. “Two-tier shares result in disproportionate power relative to the risk that the holder is taking,” said David Webb, shareholder activist and former director at HKEX. “This exacerbates the risk of controlling shareholders placing their own interests ahead of other shareholders when running a company.”

A person close to the Glazer family commented that keeping the control within the family allows the company to ignore short-term market pressures and enhances long-term strategic planning. “It’s modeled on the most-developed sports market in world [the US], which requires there to be one designated owner per team to ensure the governance allows stability and quick, efficient decision making,” he stated.

Professor Robert Bartlett, Assistant Professor of Law at UC Berkeley, comments that, “Traditionally, it was fairly easy for a dominant stockholder or management team to retain effective control over a publicly listed firm if you otherwise had widely dispersed shareholders. However, the recent emergence of activist shareholders in the capital markets has changed that. Activist shareholders are generally focused on short-term returns, and may often demand significant changes to a firm’s investment policy to achieve these returns.  Naturally, this may be inconsistent with a company’s longer-term strategic plan or even its short-term capital budgeting decisions.   While dual-class voting structures raise potential entrenchment concerns, they are also seen as a way to ensure that the company can be managed in the best interests of the company and its long-term investors.”

Delays: The Calculus of Blame

United’s IPO, first-touted for mid-October 2011, has been put on hold due to volatility and weak market conditions. Equity fundraising worldwide has ground to a halt as stock markets, which slumped in early August 2011, yo-yoed due to euro-zone debt worries and concern over a global economic slowdown.

Moreover, Duncan Drasco, chief executive of fans’ group Manchester United Supporter’s Trust (MUST), said that the delay may suggest that the club is facing problems in securing the support of cornerstone investors for the IPO “because they’re going to look at the numbers, and it’s an extremely ambitious ask at the valuations being punted around.”

The listing would be the latest installment of the clash between United’s fans and the Glazers ever since the family bought United in 2004, at the time a publicly-traded company on the London Stock Exchange. Some fans condemned the £790m buyout for placing a large debt burden (in particular their £500 million bond issue in January 2010) on United that it had to pay off with its revenue, hurting investments in the club.