I have always been passionate about investing in companies that mean something to me. Whether this is a company building fantastic products, or developing amazing solutions, investment is the fuel that makes change happen. Owning shares in a sports team is no different. With Man Utd (NYSE:MANU) shares rallying, is it an investment for me to consider?
Context
Manchester United is one of the largest sports franchises in the world, with historical success in English and European football competitions. Owned by the Glazer family since 2005, the company is 90% private, with 10% listed on the NYSE (New York Stock Exchange.).
The ownership has grown increasingly unpopular with the team underperforming on the pitch, winning no trophies since 2017. At the same time, rival teams invested heavily in their respective teams, stadiums, and facilities, gradually catching up with and overtaking Manchester United.
In 2022, the company was put up for sale.
Who is taking over?
At present, there are two frontrunners. One being INEOS founder and Britain’s richest man, Sir Jim Ratcliffe, and the other Sheikh Jassim Bin Hamad Al Thani, Chairman of Qatar Islamic Bank.
Whoever takes the helm, it is likely to become the most expensive takeover of any sports team in history. But is now an investment opportunity?
There is widespread speculation on an eventual takeover price, with estimates ranging from £3-7bn. With the share price currently $26.33, a successful takeover could see the shares move above $30 since £5bn takeover would value the shares at $30.47.
However, with the possibility of objections due to human rights issues in Qatar, or an unpalatable proposal to increase the company’s £680m debt, there are no guarantees. Speculation that the Glazer family may secure investment from US hedge fund Elliott Management adds to the possibility that the current owners will remain in control.
As a result, prospective investors must be comfortable with the potential of a deal collapsing or delaying significantly.
Fundamentals
Takeover speculation has fuelled excitement in the share price, almost tripling since July.
However, the fundamentals of the company are poor. Manchester United is unprofitable, has unsustainable debt, and under a year of cash runway. Without intervention, this is unlikely to change.
Manchester United lost £126m in the last year. When considering the future cash flow, a fair value of $5.78 is calculated. As a result, the shares could be as much as 355% overvalued!
Overall
An investment in Manchester United with the current fundamentals is effectively speculation on a successful takeover.
If prospective buyers retreat, the share price would suffer tremendously. Some comparisons can be made to the 2022 Twitter acquisition. In both cases, rocky fundamentals may be overlooked by a passionate buyer, motivated to tackle problems, regardless of cost.
For my portfolio, I see an opportunity to buy shares at a price lower than the eventual takeover price. But I am conscious that if the deal were to collapse, I would face a major decline.
Saudi Arabia’s Public Investment Fund (PIF) purchase of Newcastle United in 2022 suggest that a deal is likely, but not without objections, potential delays, and several unexpected twists. I have added a small number of Manchester United shares to my portfolio, but will be paying close attention to the details of the takeover.
