Friday, August 10, 2012

Man U IPO gets yellow card for investors

Scanpix Sweden / REUTERS

Manchester United's Wayne Rooney, right, in a pre-season friendly game against Barcelona. The team has been successful on the field, but it remains to be seen how well they'll do on Wall Street.

By Roland Jones, NBC News

With 19 English league championships to its name, Manchester United is used to coming out on top on the soccer pitch. But its initial public offering planned for Friday is looking more like an own goal for the team.

One of the world?s top soccer clubs, Man U is set to make its stock market debut on the New York Stock Exchange in a deal that will bring in some $300 million.

The offering will give the team a market value of $3.8 billion, making Man United about 10 times as expensive relative to sales as other publicly traded European soccer teams, and about twice as valuable as Spain?s Real Madrid, according to Bloomberg News.

While the iconic Man United brand has a loyal following and a stellar record in British and European soccer, analysts say the valuation attached to the team?s shares and the risk factors associated with stock ownership mean investors should consider remaining on the sidelines for its U.S. offering.

?I don?t think this is a good investment opportunity,? said Jay Ritter, a professor of finance at the University of Florida and an expert on IPOs. ?Great brand and great team, but the valuation is too rich.?

Man United has roughly $500 million in annual sales and limited growth opportunities, and has not been especially profitable, so an IPO valuation of more than $3 billion seems too high, Ritter said.

David Menlow, president of the research firm IPOfinancial.com, said that with valuations that are ?off the scale? Man United?s IPO has echoes of Facebook?s poorly received public offering in May.

The social network?s IPO was supposed to be the deal of the year and was eagerly awaited by both Wall Street and Main Street.

But the offering was a huge disappointment, marred by trading glitches and valuation problems, losing hundreds of millions of dollars for individual investors and raising questions about the fairness of Wall Street stock offerings. It led a number of other companies to put their IPO plans on ice, worried that investors will be reluctant to take such a chance again.

Facebook?s offering took the wind out of the IPO market for about a month after its botched offering, but the market has bounced back since then, with technology companies and retailers going public and seeing healthy demand for their offerings.

Man United?s IPO is the first global, high-profile offering since Facebook, and like the social network the team is aiming to profit from the affinity that people have for the brand and the sport of soccer, he said. The team?s management has said the company will look to monetize the team?s brand through new sponsorship opportunities, and merchandise and media deals.

But Menlow said he is not convinced that Manchester United has demonstrated it has new strategies for bringing in sales.

?I don?t know what they have in their quiver to bring in additional revenues,? he said. ?They can bring in capital with a stock offering, but you have real constraints in place.?

Those constraints, outlined in a documents filed with U.S. regulators in July, include competition for key players, higher salaries for players and player transfer costs as wealthy newcomers to the top-flight of British soccer -- crosstown rival Manchester City and London?s Chelsea -- pay dearly to acquire top talent, raising the cost of the world?s leading players and heaping pressure on other clubs to spend more to keep up.

Investors prefer to invest in companies that have good growth potential and diversified sources of revenue, or have just scratched the surface of some new market opportunity, said Menlow.

?Even though they?re the biggest at what they do, they may not be the best at converting it to bottom line numbers,? Menlow continued, adding that the company is highly leveraged. Much of the capital raised in the IPO will go toward paying down debt, and the rest will go to the team's American owners, the Glazer family.

?So the company is not benefiting in a way that would allow the offering proceeds to drive additional growth initiatives,? he said.

Other potential drawbacks for Man United?s offering include a dual-class share structure that will allow the Glazers, who also own the Tampa Bay Buccaneers, to control share voting rights, and the fact that the owners have no intention of paying dividends to shareholders.

Man United is also planning to take advantage of the U.S. Jumpstart Our Business Startups (JOBS) Act to go public, which exempts the team from filing quarterly financial reports or accounting updates.

Friday?s U.S. listing will be the third offering attempt by the Glazers. They had already pulled out of planned public stock offerings in Hong Kong and Singapore because of weak demand.

Manchester United went public in the U.K. in 1991. The Glazer family took the team over in 2005 through a leveraged takeover valued at $1.5 billion.?

There are some positives for potential investors, however.

Man United notes it has won 60 trophies in its 134-year history, and boasts a global fan base of 659?million followers that it says it is in the early stages of monetizing. Over 5 million items of Manchester United branded licensed products were sold in the last year, including over 2?million Manchester United jerseys, the team notes. This year General Motors signed a $559 million sponsorship deal with the team.

But despite the team?s popularity, sports franchises generally don?t do well with investors, Menlow said.

?There have been a number of them over the years, and the interest in them tends to wane,? he said. ?What happens if the team has a mediocre season? Why would people want to invest in a franchise that is already public that is having mediocre performance??

The FMHR crew talks to Hooligans on the Manchester United IPO.

Source: http://marketday.nbcnews.com/_news/2012/08/09/13202746-yellow-card-for-man-uniteds-ipo-analysts-say?lite

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