anchester United's filing for an initial public offering of shares in the US is shedding fresh light on the way its owners, the Glazer family, both borrowed from and bought debt in the English soccer club in recent years.
American entrepreneur Malcolm Glazer and his six children, who took control of the English soccer club in 2005 after a bitter takeover battle, have in the past been criticised by fans for saddling the club with too much debt, amid fears that it didn't have as much money as some rivals to compete to buy and retain top players.
Now the filing shows that the Glazer family was not only borrowing from the club, but that at least one son also bought the club's debt, earning a higher rate of return on that money than the family was paying on its borrowings.
"The historical dealings between family members of the company are something for investors to be aware of before they decide to invest in the IPO," said Thomas Conaghan, an attorney at McDermott Will & Emery, who represents companies in IPOs. He said that such sweetheart related-person transactions — while legally permissible — may not be in the best interests of the club.
Other experts emphasised that the Glazers were well within their rights since they own the company and it was not publicly traded at the time of the transactions.
"It is important to realise that it is not uncommon for private companies to make loans to owners," said Campbell Harvey, a professor of international business at Duke University.
However, Manchester United is no ordinary private company. The club boasts a global fan base of 659 million, many of them following the sport with almost religious fervor. The disclosure may help reignite the debate that became extremely heated at the time when the Glazers first took control of the soccer club after a passionate drawn-out battle. The timing of the IPO is unclear.
At the height of the global financial crisis in December 2008, the six Glazer siblings — Avram, Joel, Bryan, Edward, Darcie and Kevin — got 10 million pounds ($15.5 million) in loans for at least five years from the club "for general personal purposes" and paid an interest rate of 5.5%, according to Manchester United's filing with the US Securities and Exchange Commission this week. In November 2008, commercial banks on average charged an interest rate of 11.44% for a two-year personal loan, according to the US Federal Reserve. Manchester United said in its filing that it believed "the terms of the loans were at least as favorable to us as compared to terms that we would have received in connection with a loan to an independent third party." Then between October 2010 and January 2011, one of the sons, Kevin Glazer and a Glazer family company bought $10.6 million of Manchester United senior secured notes in the open market that paid an interest rate of 8.375%. In April 2012, Manchester United paid the Glazers a dividend of 10 million pounds, which was used to repay the loan it had made to the family. To be sure, the Glazers injected 249.1 million pounds into the company in November 2010, which the company used to repay another expensive loan. Lower debt would tend to make the company more palatable for investors in an IPO.
Manchester United still has a debt pile of 423 million pounds, which it plans to reduce through the proposed IPO. However, the cash and cash equivalents on its balance sheet dropped to 25.6 million pounds at 31 March this year from 150.6 million pounds on 30 June 2011.