-----Original Message----- From: Tanya & Mark [mailto:Mark&[EMAIL PROTECTED] Sent: 31 October 2004 16:42 To: JD Subject: FW: spam: RE: Mole report I've put the alert out but thought you'd want it for the NFS site. Have a good Halloween, hope nothing goes bump in the night. Tanya -----Original Message----- From: Towle, Nicholas [mailto:[EMAIL PROTECTED] Sent: 31 October 2004 14:23 An anonymous Red mole from the Glazer camp has sent us a copy of this memo, which has been publicised a little bit in recent press reports (e.g. the Daily Telegraph). It is a financial analysis of the rumoured bid which everyone who has read it thinks is an accurate description of what he plans to do - including junk bonds, sale & leaseback of OT and renaming OT the "Vodafone Theatre of Dreams" or something. Anyway, it is a frightening document once you get through the technical terminology. This must be why the United Board rejected Glazer's proposal. The document also gives SU helpful tips on how to defend against Glazer - he apparently needs to get 100% of the shares so we have a real chance of stopping him. -------------------------------------------------------------------------------- MUFC Financing and Takeover Considerations Executive Summary The following is an in depth analysis of a potential financing structure that could be used in the purchase of Manchester United. The findings speak for themselves and back up the announcement by the Manchester United Board this morning that the transaction will involve significant amounts of debt. In the short, medium and long term such levels of debt would be highly detrimental to the financial stability of Manchester United both as a Club and as UK Plc and could ultimately result in bankruptcy. Financial Assumptions In order to reach the below conclusions the following initial assumptions have been used: - Manchester United is taken over at 310p per share valuing the Company at approximately 815mm (equity value). - Glazer is able to contribute 365mm of equity to the transaction (the value of his current holding at 310p per share is approximately 240mm so an additional 125mm is all he needs to find assuming 100% purchase of the shares). - JPMorgan and the debt advisors put a 500mm bridge financing in place that will be refinanced through a combination of: o High Yield (junk bonds): estimated to be 150mm; o Senior Debt (syndicated loan): estimated to be 150mm; o Aggressive sponsorship revenue growth (stadium sponsorship, i.e. Nike Old Trafford or the Vodafone Theatre of Dreams): estimated at 15mm per annum; o Immediate sale / leaseback of the stadium: sale proceeds of 175mm and lease cost of 12.5mm per annum. - Net player purchases are limited to 10mm per annum. - The stadium is expanded to 75,000 capacity over the next 24 months at a cost of 50mm, resulting in increased EBITDA per annum of approximately 7.5mm. - Ticket and stadium facility prices are aggressively increased in order to improve revenue. - MUFC continue to perform well in all competitions. - Glazer manages to squeeze out the minorities so there is no leakage. - Fees to the banks of 30mm. Financial Conclusions No matter which way you cut this deal you need to be able to take an excessive number of leaps of faith for the financials to work, specifically the following cause concern: - The Company would initially have 500mm of debt (Bridge financing) in place post transaction which they would hope to reduce quickly through refinancing in the capital markets (High Yield and Syndicated Loan), as well as implementing aggressive sponsorship and revenue enhancing strategies that will reduce this burden to 290mm within about a year. The refinancing of the debt could well be achievable but my concerns are in the ability to increase EBITDA and generate additional cash through sponsorship and a sale / leaseback. I realise that Glazer has recently announced that a sale / leaseback is not being considered but this deal simply does not work unless the value of the stadium is monetised. If one piece of the jigsaw does not fit at this early stage then the debt will very quickly become crippling. - The debt struggles to be repaid even in the aggressive scenario that is outlined above meaning that if one part of the plan (sale / leaseback, sponsorship, team performance) falls through the Club could end up bankrupt. - Player purchases will be constrained by the debt only allowing the manager 10mm net to spend on players each year. It should be obvious that it will be extremely difficult to maintain performance with this financial constraint. - The financial plan assumes that the Club will continue to perform over the next ten years to the same standard that it has over the past ten. Even the most biased Man Utd fan realises that performance cannot always remain at this high level. If Man Utd were to have a couple of average seasons the following could easily happen: o Gate receipts will reduce; o Player spending will need to be increased to try and maintain performance; o TV revenues will reduce; o Shirt sales will decrease; These would all contribute to the Club missing its financial targets and in a worst case scenario could result in bankruptcy. In conclusion if Glazer looks to gain control of the Club through an aggressive financing package then the Club needs to perform to the highest level both on and off the pitch over the next ten years. By any stretch of the imagination that is a huge ask, even for a Club of Man Utds stature. Unless a significant amount of equity replaces the debt the financial burden would be a ticking time bomb ready to go off the moment Man Utd do not hit their financial forecasts. Even if a highly leveraged plan were to succeed and in ten years time the Club was once again debt free what will Glazer do then? He could potentially milk the Club of all its profits through huge dividends, recapitalise the Club through further debt raising and extract monies that way, or simply sell the Club putting us right back where we are today. Takeover Considerations Despite the announcement this morning that the Man Utd board have withdrawn from discussions with Glazer and his advisors this saga is by no means over. This is only the beginning of what will more than likely be a very drawn out and protracted saga that can only be detrimental to the teams performances on the pitch. In fact I now believe that there is a strong possibility that the deal could go hostile. The rationale for this thinking is as follows: - Despite JPMorgan historically being reluctant to conduct hostile UK takeovers they do make exceptions. This would require sign off at the highest level of the bank but could happen especially as their latest profit figures were extremely poor. The fact is that JPMorgan need investment banking revenue and this transaction will give them both revenue and a high level of publicity were they to pull it off. - For the bank to be willing to back a hostile takeover they would need to be very confident that the transaction will be a success from Glazers point of view. This would inevitably mean that the Cubic Group will have to have given Glazer an irrevocable agreement to sell their shares. But the JPMorgan Board in New York may also have underestimated the strength of feeling about Glazer among fans in Manchester and beyond - The biggest stumbling block for Glazer, the supporters, may have been lured into a false sense of security due to the Boards announcement this morning. On the face of it the boards rejection of an approach by Glazer on the grounds of excessive leverage may appear to have ended the process, however bidders are very rarely distracted by such manoeuvres and such statements are all par for the course in a takeover. If anything, now is the time to redouble defensive efforts and rally further support in your favour. - Glazer still has close to 30% of the shares. When there is an unlikely chance that someone will buy them off you why would he purchase such a large holding? Simply because he wants ownership of the Club! This is different from the Cubic Group as they appear to have purchased the shares for financial gain they may appear to be the Clubs saviour by holding out but they may only be holding out for the right price and terms. Defensive Measures Serious thought should be put into ensuring that the Glazer transaction does not succeed in the short term, and then you need to focus on the long term in order to put an end to the constant takeover speculation surrounding the Club. Short Term - Unite the supporters / shareholders through a strong awareness campaign. You need to explain how the takeover may work and what the implications are for the Club. The more information the public has the better for the Club. - Purchase as many shares as possible and gain commitments from other sympathetic shareholders that they will not vote in favour of a Glazer takeover. I stand by my recent analysis that a significant minority shareholding could block the whole transaction and cause Glazer and his advisors to have a significant rethink; however the smaller this is the easier it will be for Glazer to seize control and manage the cash flows. JPMorgan will be working at this very moment to come up with methods to service the debt assuming that there is a minority ownership post the takeover. The minorities (and therefore the fans) will get screwed one way or another with the bankers figuring out ways to allocate monies to service the debt either through shareholder loans or other creative structures. - Hire a financial advisor who is both financially savvy and sympathetic to the MUFC cause so that strategies can be further developed to halt the takeover. - Contact other large shareholders and canvas opinion. Long Term - Purchase 25.01% of the shares ensuring that the United supporters will never lose control of the Companys cash flow and takeover speculation will be terminated once and for all. - Enlist the help of MUFC friendly fans, ex-players and celebrities in order to raise funds with which to purchase the 25.01% stake. - MUFCs board needs to increase its understanding of the City and the implications of having a very equity-weighted balance sheet. The Company needs to raise a small amount of manageable debt which is a good thing as it is capital efficient and will provide a silver bullet in any takeover defence. Additional Considerations - The takeover speculation has created an artificial market in MUFC shares, hence when Glazer is stopped the share price will reduce back to pre-bid levels. This needs to be managed carefully. - Gaining a 25.01% will stop any further takeover attempt. However takeover speculation is sometimes a good thing as it ensures the board is doing a good job and keeps them motivated. You need financially and business savvy fans to be elected to the Board in order to maintain strong performance by the board who to date have performed well. - This will be a long process so you need to be prepared for a long and protracted defence of our Club! ------------------------ Yahoo! Groups Sponsor --------------------~--> $9.95 domain names from Yahoo!. Register anything. http://us.click.yahoo.com/J8kdrA/y20IAA/yQLSAA/GtUolB/TM --------------------------------------------------------------------~-> Please use [EMAIL PROTECTED] for general discussion. To unsubscribe send a blank message (from the email account in question) to: [EMAIL PROTECTED] Join as a full member of IMUSA today: http://www.imusa.org/join.htm Yahoo! 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