12/08/2012

What’s Going on with Manchester United’s Stock Price?

We've been receiving a number of questions from supporters about the launch of the IPO, and in particular (a) what it meant that the opening price was lower than what the Glazers wanted and (b) what it meant to say that the banks were holding up the price. Here's an explanation.

Where would Manchester United's share price have ended up without artificial support of the underwriters? The answer is surely far lower than where it is after the first day of trading.

Following an opening that can only be described as a huge black eye, Manchester United teeters on being the next "Facebook" as its readies for its share price to start falling.

Only the deliberate backing of the banks who brought the Glazers’ public kept the stock from plunging below the $14 per share opening price.

What happened?

The Glazers' rip-off of an IPO has been widely reported in the media over the past two weeks, in large part thanks to your phenomenal efforts alerting the banks and the press to its facts. Our advisers have been telling us privately that they've never seen an IPO sustain the battering that the Glazers took and still launch, but this tells you something about their desperate need for cash.

The stock started trading at a price of $14 per share. Almost immediately investors started selling. In principle there should have been an oversupply of United shares, which would have driven the price down. Yet on Friday there was always a willing buyer at $14 per share. These buyers are surely the underwriting banks, the ones who helped the Glazers get the IPO launched. By scarfing everything up at $14 a share they prevented the even worse debacle of an opening day price job.

You can see this in the chart below. It's like a stone skipping across a lake. At some point we believe it's going to sink.

We now await the end of the artificial price support from the underwriting banks. When their false support fails, the market will give its guidance on a realistic valuation. We expect this to be far below the Glazers’ initial pipe dream of $16, and perhaps at a low enough level ($8-$10 per share) where it becomes a takeover target.

What is a realistic valuation?

The real valuation of Manchester United should prove considerably lower than the baseless valuations that have appeared over the years in the papers from nameless sources. The initial offering price of $14 is already well below the Glazers’ hoped-for price of $16-$20.

What is truly remarkable is that every serious investor or journalist who has commented on the price has said it massively overvalues the company.

Those who have cravenly defended the Glazers remain loath to speak to any facts and deal solely with the hypotheticals that emanate from the Glazers own spindoctors.

The most thorough analysis we're aware of is this Morningstar piece estimating fair value to be $10 per share, but even this is caveated and could be lower depending on Club performance.

If a $10 per share price is more realistic, this would value Manchester United at around £1 bn or lower, putting it squarely in the frame as a possible takeover target.

EDIT: Just after posting this we because aware of the PrivCo analysis in which they value United at $4.97 per share based on the company's fundamentals and the performance of sports teams generally! We've linked to this at the very bottom of the post.

Some commentators are now drawing comparisons with the disastrous Facebook IPO and the same ultimately futile defence put up by underwriters. Facebook now trades at a much lower level, reflecting a price that a broad array of investors feel is more legitimate. While the Financial press have recognised these similarities, this story has not been covered in any mainstream media.

Again, the Club pays for the Glazers’ greed

In their damn-the-torpedoes strategy, the Glazers ploughed on with the IPO earning roughly $110 million for themselves immediately. Meanwhile, as described in this analysis by Andy "andersred" Green, Manchester United (the business) will be required to pay the fees of the IPO. In fact, it will be two years before United begin to "benefit" from the flotation, yet the Glazers get their money straight away. This will be coming as a surprise to no-one.

Below are links to stories that provide additional information.

Wall St Journal: Manchester United IPO Fails to Excite the Crowds
"For most of the afternoon, the share price toggled between $14.01 and $14, an indication that the underwriting syndicate, led by Jefferies Group Inc., JEF -1.05% was supporting the stock. Underwriters can step in to buy shares in an effort to keep a deal from "breaking," or sinking below its IPO price, but there is no set amount of time that they will continue to buoy the shares beyond the first day of trading. Both Manchester United and Jefferies declined to comment about whether the stock was being supported."
http://on.wsj.com/P4XeVJ

FT: 
Underwriters had to step in to support Manchester United as shares in the British football club repeatedly tested their $14 listing price after their debut on the New York Stock Exchange on Friday. That came after shares were priced below the expected $16-$20 range on Thursday. Man United shares ended up 0.1 per cent to $14.20. 
http://on.ft.com/P4Futn

AFP: Manchester United shares flat after cut-price IPO
"Analysts said underwriters were propping up the shares on the New York Stock Exchange to keep them from dropping below the issue price."
http://yhoo.it/P4X4h7

MarketWatch - The Wall Street Journal: Manchester United Being Supported At Offering Price By Underwriters
http://on.mktw.net/P4EHbT

dealbreaker.com: Manchester United IPO Goes Nowhere In Exciting Fashion
"guess the stabilization strategy of an overhyped IPO"
http://bit.ly/P4F7iy

New York Post:
"Underwriters were forced to prop up the price amid slack demand, according to reports, an uneasy reminder of Facebook’s underwhelming May 17 debut."
http://nyp.st/P4DbXk

PREMARKET INFO: 
It’s the underwriters versus the HFT rebate traders.  We’ve got a real soccer match here, and the result….a locked stock price.  Analysis of the HFT tractor beam in MANU:
http://bit.ly/MmKxp1

Zerohedge:
"... the underwriters of the MANU IPO are 'pulling-a-facebook' ..."
http://bit.ly/OYzqCS

PrivCo report:
If the stabilization bids used to support the overvalued IPOs of Zynga and Facebook are any indication of what will happen with Manchester United, Monday might prove to be a very rough day. PrivCo CEO and Founder Sam Hamadeh stated, "The magnitude of the overvaluation of ManU's IPO - and therefore the potential for a disastrous collapse in the company's stock - is reminiscent of IPOs from Zynga and Groupon."
http://bit.ly/Okoel8