English soccer team Manchester United set the terms for its US initial public offering (IPO) on Monday saying it would offer 16.67 million shares at between US$16 and US$20 each, which values the club at US$3.3 billion at the top of the range.
Manchester United has been struggling with a hefty debt burden ever since being acquired by the family of Florida-based businessman Malcolm Glazer and his family in 2005.
The club and the Glazers will each sell half the IPO shares in an offering that could raise as much as US$333 million. The club’s proceeds from the IPO will be used to reduce its debt. The Glazers will remain in a dominant position after the offering with 89.8 percent of the combined class A and B shares.
However, the IPO could prove a tough sell in the US given the lack of US publicly traded sports teams to compare Manchester United with and given that many -Americans do not consider soccer to be a top sport.
The company’s latest financials might also give investors pause. Revenue for the current fiscal year 2012 is expected to be between ￡315 million and ￡320 million (US$495 million to US$503 million), down 3 percent to 5 percent from the previous year, the company said in its S-1.
Operating expenses also increased 4 percent to 5 percent as a result of a jump in player and staff compensation.
Shares are highly priced based on earnings ranging from ￡21 million to ￡23 million in the year just ended. This makes the price to earnings ratio based on both A and B shares a very steep 95 times.
“It could be challenging to justify such strong multiples for a company that needs to spend a lot of money to generate success,” Ken Perkins, an analyst with Morningstar said. “Even if their performance is good their price may be a bit high.”
The details of the sale were announced just as it was revealed that the club had signed a seven-year sponsorship deal with General Motors Co to have the Chevrolet brand on their shirts starting in 2014. The deal is worth about US$600 million.
The club had filed to raise up to US$100 million in its IPO of Class A stock earlier this month.
Manchester’s United are scheduled to start a two-week investor roadshow today, with stops expected in the US, Europe and Asia, according to a source familiar with the company’s plans who was not authorized to speak publicly about them.
The roadshow stops will be done concurrently, with two separate management teams covering different areas. One will be -responsible for meeting with investors in the US and the other with investors in Europe and Asia. Pricing is expected on Aug. 9.
The Glazers also own the US football team the Tampa Bay Buccaneers. They will retain control after the sale because their Class B shares will have 10 times the voting power of average investors’ Class A shares.
Jefferies Group Inc is the lead book runner in the syndicate, which also includes Credit Suisse, JPMorgan Chase, Bank of America Merrill Lynch and Deutsche Bank. The company will list on the New York Stock Exchange under the ticker “MANU.”