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Billion Dollar Singapore IPO a Defining Moment for Manchester United

Manchester United F.C. is one of the most profitable soccer teams on the planet. It is also one of the most indebted. This week, its American owners, the Glazer family, announced that the company they took private in 2005 will be floated on the Singapore stock exchange with a target of $1 billion.

Football — what Americans call soccer — is suddenly high finance. And the outcome of an upcoming public offering might decide the future of two disparate entities: Manchester United and its U.S.-based owners, the Glazer family; and the Singapore Exchange and its Swedish-born chief executive, Magnus Böcker.

Manchester United, football’s most storied team, is planning to raise $1 billion in an IPO that is considered critical to the club and the Glazer family. But the success of the deal is just as valuable to the Singapore exchange, which after a series of costly missteps is fighting to maintain its independence.

The Singapore exchange is one of the most profitable stock exchanges in the world, with a profit margin of 48 percent in its past fiscal year. But it trails the Hong Kong Stock Exchange in business, especially lucrative IPOs. Last year, for example, the Hong Kong exchange had $53.2 billion in IPOs, compared with $6 billion in IPOs at Singapore. The latter exchange, which is 23 percent owned by the Singapore government, has fear for years that continued dominance by Hong Kong would not only affect its profitability but make it redundant, further reducing its competitiveness versus Hong Kong and Bombay.

So in 2009, Singapore hired Böcker, head of Nasdaq OMX Group, to try to raise its profile. Böcker, former head of the Sweden’s Stockholm Stock Exchange (OMX), had aggregated a series of exchanges, mostly Nordic, in a sale to Nasdaq (a deal that hasn’t looked very healthy of late).

In April 2010, Böcker offered $8 billion to buy the Australian Securities Exchange (ASX); he reached an agreement to purchase it in October. Almost immediately, Singapore Exchange stock fell nearly 20 percent — a $1.5 billion value — on the belief that Singapore was paying too much. The ASX purchase unraveled in April of this year Now, Böcker and the exchange are hoping that the Manchester United IPO will revive their fortunes. They have made several concessions to the Glazer family, including streamlining the review process.

What Singapore may be getting, however, is an extremely troubled company — one in which the owners’ primary business is having troubles and the team is heavily in debt. More significantly, in the European football business, where heavy spending on players correlates significantly with success, Manchester United is finding itself outspent by the likes of Sheikh Mansour bin-Zayed al-Nahyan, owner of crosstown rivals Manchester City Football Club, and Russian oligarch Roman Abramovich, owner of Chelsea FC.

The Glazer family whose First Allied Corp., owns and operates strip malls and the Tampa Bay Buccaneers football team, purchased Manchester United in 2005 in a $1.2 billion leveraged buyout. But the subsequent years have not been kind to the Glazers. In August 2010 a report by the Guardian newspaper and the BBC reported that of the 68 shopping centers owned by the Glazers, four had closed, one was in default, and another four had failed to pay their mortgages. At 29 other properties the revenues generated did not cover mortgage payments. The report also noted that the Glazers might owe more than $400 million to three hedge funds as a result of their strip mall woes.

At Manchester United too the debt has ballooned, as has the cost of servicing it. The club reported in March that it had a record loss of $170 million for the year ended June 2010, much of it incurred to service a debt that now stands at more than $800 million. With the Glazers reportedly tapped out in their ability to borrow more, the IPO appears to be the only recourse. Manchester United has appointed Credit Suisse as the lead manager and JPMorgan Chase & Co. and Morgan Stanley as part of the IPO syndicate, along with an assortment of Asian banks.

The Glazer family and the exchange are pulling out all the stops to guarantee a successful offering. They are said to have approached Peter Lim, a 58-year-old Singapore billionaire who owns a number of Manchester United–themed bars, to act as a cornerstone investor. Lim last year made an unsuccessful bid to buy Liverpool Football Club for £360 million ($589 million); the club was eventually acquired by Boston Red Sox owner John Henry and his New England Sports Ventures for £300 million. They have approached billionaire Hong Kong businessman Li Ka-shing for his support in the IPO.

The sticking point in all of this seems to be valuation. The Glazers naturally want the highest valuation, because it will allow them to take out their original investment with the least amount of dilution (a standard practice in the world of buyout financing). It also might strengthen their hand in new signings of players, an area in which they are being outspent by rival clubs.

Manchester United claims to have one of the largest sports fan clubs in the world, 330 million strong — and 190 million of them are in Asia. Hence the plan to go public in Singapore and attract fans as investors. Also, fans may be less discriminating about financial numbers or valuations as long as they get to own shares in the club.

City of London investment analyst and Manchester United fan Andy Green isn’t so sure. He points out that fans do care about the fate of club, especially that the money goes into the running of the club and not to pay off the Glazer family’s personal debts. And the valuation is sticky. Trying to raise $1 billion and using it to pay off all the debt incurred by the Glazers would be healthy for the team but creates an estimated market cap of $3.3 billion — uncomfortably higher than most sports enterprises — and a value of 19 times earnings before interest, taxes, depreciation and amortization, which is higher than the value that high-visibility, luxury-brand companies such as Prada and L’Occitane command on the nearby Hong Kong exchange.

Manchester United continues to be one of the world’s most successful football clubs: 19 times champion of the U.K.’s Premier League. The 1958 Munich plane crash that killed eight of the team’s star players is part of football’s legend. Just as important is the club’s marquee value: Its corporate sponsors include insurance giant AON Corp, Deutsche Post DHL and Nike, and Asian companies such as Vietnamese telecommunications group Beeline and Mamee Double Decker, a Malaysian snack-food maker. But all of this might unravel over the rumors, mystery and circuslike atmosphere over the club’s Singapore Exchange IPO.

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