The owners of English Premier League football team Manchester United have announced plans to register the club as a corporation in the Cayman Islands and float its shares on the New York Stock Exchange.
The intention of the US-based Glazer family is to raise up to $100 million in an initial public offering from stock investors to pay off part of the club’s $663 million debt, a registration document filed with the US Securities and Exchange Commission shows.
The club, which so far has conducted business as Red Football Shareholder Limited and subsidiaries, will prior to the stock market flotation reorganise in a transaction that will see the company become a wholly-owned subsidiary of Manchester United Ltd, an exempted holding company with limited liability that was incorporated in the Cayman Islands on 30 April, 2012.
Rolf Lindsay, a partner with Cayman law firm Walkers, the legal counsel for United, said “the Cayman Islands is an increasingly popular jurisdiction for companies seeking to raise capital in the public markets by listing their shares on stock exchanges in the US and in Asia”, due to the contractual flexibility and legal certainty enjoyed by companies incorporated in Cayman.
Walkers did not comment on Manchester United’s motivation for registering in the Cayman Islands but the registration document makes clear that the reorganisation transaction allows the Glazer family to raise capital from investors while retaining control of the club.
The United shares will be split into two classes with class A shares being offered to investors. The Glazer family will retain class B shares, which have ten times the voting power of investor shares, and represent 67 per cent of all shareholder votes.
The laws of the Cayman Islands differ from those in the US, for example with regard to shareholder rights and anti-takeover provisions. The organisational documents of Manchester United Ltd and Cayman law discourage unsolicited takeover attempts by shareholders and restrict the ability to remove a company’s management. Shareholders are also more limited in Cayman in bringing derivative actions against a company’s management than under US law, the registration document explained.
The club said in its filing with the SEC that although it is organised as a Cayman Islands corporation, it expects to be treated as a US domestic corporation for tax purposes and thus be subject to greater tax liability than in the years 2009, 2010 and 2011 when its principal operating subsidiaries were tax residents in the United Kingdom. The US taxes domestic corporations on their worldwide income at a federal income tax rate of 35 per cent. The company will have no employees in the Cayman Islands.
After considering a Hong Kong IPO, the club had planned a listing in Singapore in the second half of 2011 before putting plans on hold because of market turmoil.
Manchester United has given no details of the number of shares that will be listed on the New York Stock Exchange or the stock price, but said that it does not intend to pay dividends to shareholders for the foreseeable future. Manchester United is one of the world’s most recognisable brands. Forbes magazine estimated the club’s worth at $2.24 billion, more valuable than Major League Baseball’s New York Yankees or the Dallas Cowboys of the National Football League. Part of the success is the Red Devils’ global fan base of some 330 million.
In the 2010/11 season Manchester United had revenues of €367 million, trailing the two largest football teams Real Madrid with €479.6 million and FC Barcelona with €450.7 million, according to an analysis by accounting firm Deloitte. Billionaire Malcolm Glazer, who also owns NFL football team Tampa Bay Buccaneers, took over the club in a leveraged buyout in 2005 valued at $1.47 billion and transferred some of the debt on to the club. The total debt of $663 million carried by the club at the end of the first quarter 2012 is one of the main business risk factors outlined in the document. It limits the club’s strategic options and increases its vulnerabilities as a significant portion of cash flow has to be dedicated to the servicing of debt.
Of the record profits of £110.9 million in 2010-11, the club had to spend £51.7 million on interest payments on a £526 million bond scheme that replaced bank loans in 2010. In 2009-10, the club posted pre-tax losses of £79.2m, largely as a result of write-downs and one-off charges relating to the bond issue.
Other risk factors mentioned in the 231-page prospectus are the popularity and performance of the team. Manchester United is the most successful of English football teams with a total of 19 league titles. In sporting terms, however, the Red Devils suffered a setback last season after relinquishing an 8 point lead to crosstown rivals Manchester City and losing the title on goal difference on the final day of the season.