Today I’m looking at Manchester United (NYSE:MANU) shares after Sir Jim Ratcliffe agreed to buy a £1.3bn stake in the club. The deal will give him 25% of what’s arguably the biggest club name in world football.
So, I’m starting with the maths.
If 25% is worth £1.3bn, it suggests the Glazers value the club at £5.2bn. With 163m shares in issue, that means each share is worth £31.9. That’s $38.9.
However, on Monday (16 October) the NYSE-listed stock — around a quarter of the total shares — opened 9% down at $17.50.
So, how do we explain this discrepancy and is this a buying opportunity?
What does the deal mean?
In the proposed agreement, Ratcliffe and his company INEOS are anticipated to oversee the football operations of Manchester United, potentially marking the initial phase of a gradual takeover.
Ratcliffe, who already owns french outfit OGC Nice, is expected to make more money available to the club for transfers and the much-needed overhaul of Old Trafford.
It’s been reported that INEOS wants to transform the stadium into a 90,000-seat arena, presumably with better match day facilities and corporate hospitality — a great source of revenue in more modern stadiums.
Of course, Ratcliffe doesn’t have the deep pockets of Sheikh Jassim bin Hamad al Thani who withdrew from the bidding process. I think it could mean we’ll see more of a ‘moneyball’ system. This is a popular system employed by owners, including those running Brentford, Brighton and Liverpool. It essentially involves finding undervalued players on performance metrics that might be overlooked and buying them.
Staged takeover
Could Ratcliffe’s purchase be the start of a staged buyout? Well, it’s important to note that the initial Ratcliffe offer never included taking the listed shares — those not owned by the Glazers — private.
As such, earlier in the year, the club’s shares pushed higher when it appeared that Sheikh Jassim, who intended to buy the listed shares in addition to the Glazer shares, was close to taking over Manchester United. That’s because he’d have bought the shares, including the listed ones, at a premium to the market valuation.
However, it’s certainly the case that Ratcliffe could use his new position to buy out more of the Glazer family’s holding. Although some people may question if he’s got the money to do that, after all, he’s backed down from taking all of the Glazer 67%.
It also seems unlikely that the INEOS owner will go after the NYSE-listed shares at all. It’s been reported that he wanted the Class B shares, owned by the Glazers, which have significantly more power than the Class A shares that can be bought on the stock exchange.
As such, despite Manchester United shares falling, I don’t see this as a buying opportunity. If Ratcliffe isn’t going to buy them, they’re just expensive shares in a loss-making organisation. Of course, Premier League clubs could become consistently profitable one day — TV rights really could drive this — I’m just not sure that’ll be any time soon.
One final consideration is that Ratcliffe’s £1.3bn could include clearing some debt. I haven’t heard anything to that end, but it would make a difference to the above calculations.
