20/01/2024

Andy Green's analysis of the latest SEC filings relating to the "Strategic Review"

Andy Green, MUST's Director of Finance (and in his day job Head of Investment at Rockpool Investments LLP) gives his analysis on the latest SEC filings relating to the "Strategic Review" which resulted in the investment by Sir Jim Ratcliffe.

Latest SEC filings - what it tells us about the bids for United

Over the last month, sports journalists, pundits and Twitter users have had a new fun task of trawling through hundreds of pages of United’s filings with the US Securities and Exchange Commission (“SEC”) relating to Sir Jim Ratcliffe’s investment in United. The club is obliged to file these documents because it is listed on the New York Stock Exchange. The US authorities and legal system take SEC filings very seriously, and providing inaccurate information in them can lead to huge fines or even prison sentences for the directors of companies or lead to the lawyers who drafted them being disbarred. So if it’s in an SEC filing, it can be relied upon as being true.

The filings published on 17th January, alongside United’s Q1 financial results, make particularly interesting reading as they contained a detailed timeline of the club’s infamous “Strategic Review” process that began in November 2022 and ended on Christmas Eve 2023. 

The club has to set out this timeline because it is recommending the tender offer that SIr Jim is making for 25% of the listed A shares to shareholders. By setting out who offered what and when during the process it is giving shareholders the information they need to appraise the tender offer.

So what have we learnt?

How the process worked

• 170 separate parties contacted or were contacted by Raine, the bank appointed by United to run the process.
• Of these 26 entered into NDAs with the club to see more information.
• Raine then issued “process letters”, setting out how the timetable for finding a buyer/investor would work to 19 of the parties . This was done by mid February last year.
• Around 17th February ten different parties submitted proposals to Raine.
• Seven of these proposals were for minority investments in the club, these were likely to have been some of the private equity funds mentioned in the media at the time
• One was a “SPAC” proposal (where the club is merged with a new stock market listed company). This is likely to have been the Finnish businessman Thomas Zilliacus.
• The two main bids were Sir Jim’s and Sheikh Jassim’s.
• The number of interested parties were whittled down to 8 in late February 2023, with another unnamed party joining in March, to make 9.
• The minority bid options were all rejected during March because the terms offered were considered unattractive, leaving Jassim and SJR as the two final bidders in April

Sir Jim Ratcliffe’s proposals

• SJR made four offers to Raine between February and October 2023.
• Initially SJR was looking at only buying the Glazer B shares at $22 per share, valuing them at c. $2.4bn and (if you ascribe the same value to the A shares he didn’t want) the whole club at c. $3.6bn.  At this stage he wasn’t suggesting subscribing for new shares too, presumably because he would be a majority shareholder who could do that later if needed.
• In March he revised his offer (again for B shares only) to a more complicated structure where he would buy an initial 60% of the B shares and then have “put” and “call” options over the remaining 40% three, four and five years later. So he could use the call to choose to buy out the remaining B shares over this period, or the Glazers could use the “put” to force him to buy them.
• The price for the initial 60% was $28 per B share and then $33, $34 and $35 for the three annual amounts (if the Glazers used the put) or $34, $35, $36 if he used the call. This offer valued the club at c. $5bn and would have cost SJR c. $3.4bn over the period up to him owning all the B shares.
• This proposal was rejected by United, as the Glazers preferred either a full sale or minority primary (new) investment.
• SJR revised up his initial price to $33 per share in May, keeping the same put and call structure for the other 40% of the B shares. The cost would be $3.7bn and the offer valued the club at $5.5bn. He told us in our meeting that he thought he had a deal in May 2023. Again the offer was rejected.
• It then took until July for SJR to change his approach, when he offered to buy only 25% of the B shares at $33 per share, together with 25% of the A shares at an unspecified price. There was no proposal to subscribe for new shares.
• Further discussions then took place between the parties and in September SJR proposed that football matters be put in his hands and United pushed for a new injection of funds into the club.
• A deal almost in the form that was eventually agreed was proposed by SJR on 13th October. Between then and Christmas Eve the parties haggled over details, particularly whether SJR could transfer the B shares he was buying without them automatically converting into A shares, and various things to do with dividends and share buybacks.
• At this point SJR gave Raine a deadline of Christmas Day to agree the deal or he would walk away. On Christmas Eve, United’s board met and the deal was ratified and announced.

The Jassim proposals and process

• Jassim’s consortium made five separate offers between February and June 2023, starting at c. $4.1bn and ending at c. $5.1bn. The final offer (only) was to pay a higher price for the Glazer owned B shares than the listed A shares, something the club and its advisors couldn’t agree to.
• Interestingly in May the Qataris asked for guidance as to what the club/Glazers might accept. The answer was $35.25 per share (total value c. $5.8bn).
• Critically, through all the rounds of offers, the Jassim team did not provide United and its advisors with the normal proof that they had the requisite funds. This is pretty extraordinary, as directors of listed companies really can’t progress with an offer unless they have assurances that the money is there. The Qataris’ advisers would know this. Why wouldn’t they supply the proof? Perhaps we’ll never know.
• In late July after many more discussions, the Qataris rejected the “same price for all the shares” condition. Further discussions took place until 15th October, when Jassim withdrew from the process.

Why were SJR’s earlier offers rejected?

In value terms per B share, SJR’s May offer valued the B shares at more than the final offer (because of the price in the put and call options he was proposing). The offer also provided the Glazers with a full sale of their B shares, albeit over time. So why was this rejected?

It seems from the filings that there was considerable concern, especially from the non-Glazer directors, over the risk of United and its directors being sued by the A shareholders if they weren’t included. At no point until July did SJR make an offer for any A shares. Why? Well presumably because they were of no importance in taking control of United. The B shares alone did that, so why bother spending money on the A shares?

Furthermore, even SJR’s best (May) offer for the B shares would only have yielded an average price of $33.80 per share over 5 years. That is still well below the $35.25 Raine told Jassim might be agreeable.

Comparing the two bidders’ proposals

We can now see that SJR offered more money to the B holders (i.e. the Glazers) at every point until June 2023. At this point Jassim was offering 0.6% more and immediately rather than over time, but was offering a lower price to the A holders which the board wasn’t willing to countenance.

The main difference between the two is not actually price, it is proof of funds. SJR’s advisors provided that everytime he changed his offer. Jassim never did….

Final observations

The SEC filings make it clear that when the “Strategic Review” began, the Glazers wanted one of two things; either a full sale of United or a minority investor who would put in new funds. If they weren’t going to sell the club, they had to get new money into it. It’s almost as if they recognised that it was in a bad way…..

As for SJR, he wanted control of Manchester United. He could have got that by making an offer for all the shares, not just the Bs, but he never did. He and his advisors presumably disagreed with the club’s lawyers about the litigation risk of buying the B shares but not the A shares. In the end he got a sort of control, but only over the football side of the business, and lots of protections for himself as a minority shareholder. He got this at far lower cost than his proposals to buy all the B shares, but he still has to work with the Glazers. We’ll have to see how it works in practice.