Dave's Man United Web Site

Fight Glazer

THE FULL HORROR REVEALED!


P. O. Box 146, Manchester, M16 8XW


FOR IMMEDIATE RELEASE


EXPLANATION OF GLAZER’S DEBT FINANCING PROPOSALS
as contained in his Circular dated 23 May 2005

THE FULL HORROR REVEALED



Summary

Glazer has taken on up to £921 million of debt, both personal and corporate, to acquire United.

If this debt is allowed to run for at least 7 years, then the accumulated repayment value could reach as high as £1.5 billion.

The debt leveraged on United’s assets could be as much as £700 million within 6 months of closing of the offer.

Servicing that £700 million debt (interest & principal repayments) would average out at approx. £85 million p.a. for the first 7 years, increasing substantially thereafter

Glazer could reduce the debt burden by the sale & leaseback of Old Trafford, which might net him £200 million.

In that case, servicing the debt could still cost the club an estimated £55 million per year, plus the annual OT lease payment.

The offer document contains no detail on how the club might generate enough cash to pay down this debt and no commitments on transfer funds or other key issues for United fans and small shareholders.

Manchester United is in peril as never before. No other football club has ever had a debt burden of this size, and there is no real prospect of clearing this debt for many years to come.




Finance structure

Glazer plans to finance the acquisition of Manchester United as follows:

• £272 million of his own money (all or most of which was borrowed from Commerzbank we hear)
• £275 million of ‘Preferred Securities’ issued to various Hedge Funds by Red Football Ltd (Red). These ‘Prefs’ are basically debt in another form, a type of share which has no vote but a fixed financial return and which are not (initially) secured on the assets of the club. Red has the right to redeem these Prefs at any time, which is likely to happen within 6 months of closing of the offer as they are very expensive to maintain (see below). The redemption value increases hugely as time goes by. Red must also pay a redemption premium to the holders, the Hedge Funds – estimated amount £50 million – we will confirm this when the finance agreements have been inspected). The finance to redeem these Prefs will most likely be secured on the assets of United, ranking in priority behind the Senior Debt (it will probably be classed as ‘Junior Debt’, as it bears more risk than the Senior Debt and will therefore carry a higher interest rate). Glazer does not confirm that this redemption will occur or mention the Junior Debt in his Offer Document, because he does not have to – it will take place after Closing.
• £283.9 million of “Senior Debt” secured on the assets of United. This debt can be drawn down in 5 tranches, bearing different interest rates and maturity dates (some of this debt will go to pay the estimated £50 million + of banking and advisory fees payable by Glazer on this transaction and which will be borne by United)
• £90 million of working capital and capital expenditure facilities – these facilities were not mentioned in the RNS summary offer statement of last week

Total acquisition cost = £920.9 million

Total debt incurred by Glazer’s companies which could (and probably will) be leveraged on the assets of Manchester United = £648.9 million + the cost of the redemption premium on Prefs est. at £50 million = £698.9 million

Interest and Principal payments over first 5 years

Prefs – these incur rolled-up interest at average interest rate of 17%, totalling £48 million per year for 5 years, giving a redemption value after 5 years of £615 million. Rolled-up interest is not immediately payable, it accumulates and is added annually onto the redemption value of the Prefs.

Senior Debt – average interest rate over 5 tranches is £25 million p.a. for the first 5 years, plus a further est. £5 million on the working capital facilities. Add total capital repayments of £12.5 million p.a. for first 5 years, this makes:

£42.5 million per year total amounts payable by United on Senior Debt

Junior Debt (assuming refinancing of £275 million of Prefs + premium of £50 million - £325 million) – more expensive as more risky, so assume average interest rate of 10% p.a., and initial capital repayments of £10 million p.a., this makes:

£42.5 million per year total assumed payable by United on Junior Debt.

Total payments annually required to service the debt in Manchester United:

£85 million


Sale & Leaseback of Old Trafford

The only way Glazer can seriously reduce this level of debt quickly is by sale & leaseback of Old Trafford for an estimated £200 million cash payment into the club.

This would be used, we assume, to redeem the Prefs to replace part of the debt financing, so on this assumption, we can reduce the Junior Debt element in the above calculation to £85 million (£75 million + reduced redemption premium of £10 million). This brings the annual service cost of the Junior Debt, using the same bases as above, to:

£12.5 million +
£42.5 million (Senior Debt)

= £55 million p.a. still required to service the debts under the sale & leaseback scenario.



Conclusion

In order to complete his takeover of United, Malcolm Glazer has taken on 3 levels of debt.

1. Personal or family foundation debt.
To buy his original stake (up to 28.1%) Glazer used his own assets. Everything we know about him tells us that it is not his style to use his own money, and we have been told (on good authority) that the whole of that stake was acquired with borrowed money. Although he is not initially planning to leverage this debt - £272million - against the assets of Manchester United, we can assume that he will expect the borrowing to be repaid by the profits of the club.

2. Senior Debt secured on United’s assets
JP Morgan agreed to lend up to £540million to fund Glazer’s acquisition of the club. However this was contingent on him securing conditional acceptances of 75% of the share capital. Cubic refused to risk giving a conditional acceptance of his offer. They wanted the money up front. Without them he was unable to secure the 75% he needed to trigger the JP Morgan loan.

3. Preferred Securities as bridging finance
In order to buy out Cubic, Glazer was forced to fund the buyout with effectively a bridging loan. This was a very expensive way to fund the purchase of the Cubic stake and the rest of the shares he needed to reach the 75% that would allow him to take the club private and trigger the JP Morgan finance. He did this by issuing what are known as “preferred securities” in Red Football Ltd to various hedge funds. Preferred securities are a particular type of share which confer no voting rights in a company but which attract high interest and when are often secured on the assets of a company, in this case Glazer’s own shares.



At the moment Glazer is claiming in his offer document that the only debt which will immediately be transferred to Manchester United, on his taking the company private, is the £373.9 million to be lent by JP Morgan. This is because the plc Board rejected his first proposal as “over-leveraged”, so he put in place some “debt in drag”, the Preferred Securities. But the cost to him of these Prefs, with their rolled up interest at 17% p.a., is so horrendous that it would only make financial sense if he buys then back as quickly as possible. No sane lender would give him the necessary funds to refinance unless (i) they were paid very large fees for doing so or (ii) there were sufficient United assets left over after JP Morgan’s first priority security ranking. And this refinancing will be expensive too.

A better bet for him is to execute a sale & leaseback of Old Trafford as soon as possible. OT is the only unmonetised asset left at United. This would undoubtedly incur the wrath of all United fans across the world as selling the heritage of the club.





*Notes to editors:

SU is a not-for-profit organisation of United fans holding shares in United for emotional rather than financial reasons and who oppose attempts by Glazer or any other individual or company who wants to acquire Manchester United for profit. SU believes United should be independently owned, with supporters having a significant stake and a real voice in the running of the club. SU membership has risen to over 30,000 members since starting up 5 years ago.

SU is currently a company limited by guarantee, but is about to put a proposal to members to convert into an Industrial & Provident Society registered with and overseen by the Financial Services Authority.

Contact: Nick Towle 07770 226681
Oliver Houston: 07855 097753
Sean Bones 07743 001164

Latest News care of Red11.org & Barry Leeming

Red11 Match Reports

Red11 News on ManU

Dear SU Member

This is a long email but please take a minute to read it as it contains important information relating to the future of Manchester United and also your shareholding.

[1] PUBLIC RALLY - BANK HOLIDAY MONDAY - MAY 30TH
[2] FINAL SHARE PURCHASES
[3] IMPORTANT MESSAGE FROM THE SU BOARD


[1] PUBLIC RALLY - BANK HOLIDAY MONDAY - MAY 30TH
Public Rally Bank Holiday Monday May 30th Manchester Apollo Theatre Ardwick Green kick off 3pm

We'll Never Die!
Fight Glazer's Occupation of Manchester United: The Independent Manchester United Supporters Association, Shareholders United and the fanzines Red Issue, Red News and United We Stand are calling all United fans to a public rally this coming Bank Holiday Monday May 30th at 3pm in the Apollo Theatre Ardwick Manchester.
Glazer's offer document reveals that his borrowings are even worse than we feared, he has borrowed over £900 million to acquire his shares in United, the interest alone is in excess of £80 million pounds a year with heavy penalties if he does not keep to his repayment schedule. By comparison United's profits before tax last year were just £27 million! His failure is inevitable - its just a matter of how long it takes and how much damage he does to our club before we get him out.

Glazer has made no attempt to appeal to fans nor has he outlined his future plans because he has nothing to say, he is just hoping that we will all meekly accept that he has won and give in - we need to demonstrate that Manchester United never gives in - United have faced darker times and survived and we will survive this threat too if all those who care for the club rally to the cause.

Sponsors and commercial partners are sensitive to protests and boycotts.
Vodafone are already reviewing their partnership with a Glazer owned United after thousands of contracts were cancelled. We must redouble our efforts with each of his commercial partners, with Glazer's finance on a knife edge the action so far has shown that every little really does help.
Glazer cannot afford to carry the debt himself he would lose everything if he fails to take the club private and quickly shift the debt onto Manchester United - if we act now we can still stop him. Failure to act will see him financially cripple the club for years to come.
The 700 fans that packed into last week's meeting in Manchester called on the plc Board to refuse to collaborate in Glazer's destruction of the club and resign. To secure the club's long term future we must make the club ungovernable now and each day that he is in situ.
Football is attractive to people like Glazer because it is a cash business he is not interested in history or tradition he can only win if those who care stand by and let him
A plan of action was adopted at the meeting last week further proposals
will be put forward at Monday's meeting including a proposal to send Nike
gear back to from whence it came, don't leave the fight to someone else
this is our club not Glazer's he may have bought the business but he will
never buy the club.
Get everyone you know along to the Apollo on Monday May 30th kick off 3pm the fight goes on.
We intend to have a skip outside for people who would like to dump their Nike gear in it and we hope to have arranged with a charity to make good use of it. Otherwise it is likely to be sent to Nike's UK headquarters.

[2] FINAL SHARE PURCHASES
We are about to make our last share purchase through the Shareholders United Share Scheme. However we want members to continue to invest as we make the transition to the 'MUFC Phoenix Fund' so please do not assume you need to cancel your standing orders (if you have one). On the contrary we want to encourage more people to set-up standing orders (UK Banks) to make regular investments which will be transferred to your Phoenix Fund account once it is established. More details will follow but please be assured that any money invested into the fund will remain yours, earning a good rate of interest once the new account is established, and you will be able to withdraw it if you need to. Obviously we hope that you will not and that we can also attract as much as possible of the 140 million pounds that would result from sale of the 18% of shares held by supporters, so that we are in
a position to buy a sizeable chunk of MUFC if and when Glazer's Red Football Corporation meets its demise.

[3] IMPORTANT MESSAGE FROM THE SU BOARD
Those members who are private shareholders (shares bought outside of SU Share Scheme) will have received the Glazer offer document by now. SU has received the Offer Document as nominee and 'legal' owner of all shares in the SU Share Scheme (SUSS) - members who hold shares only through SUSS will not get a separate Offer Document. A copy of the Offer Document will be available for members on the website.
We have not yet heard from the MU Board, but we expect them now to recommend remaining shareholders to accept the offer, as Glazer has control anyway and it would be reckless financial advice to do otherwise.
Please do not panic, or do anything until you formally hear from us - we are in the process of putting together a letter to members as well as a letter to all small shareholders, a time-consuming and complex exercise as you can imagine. We hope to get these letters out this week.
We are always mindful that we have to act responsibly, within the law and in accordance with our Constitution in respect of our members and their shares. But ultimately, it will be your own decision as to what you each do with your shares, with guidance from us on your options.
You should also be aware that the reports in the newspapers about the 3-week deadline for selling to Glazer or risk being left with worthless shares are, as usual, incomplete and inaccurate.

This is the definitive legal position.
(1) The initial period for acceptances of the offer does expire at 3.00pm on 13 June, the minimum offer period of 3 weeks allowed by law.

(2) If Glazer gets to 90% acceptances of his Offer, that is shareholders holding a total of 90%+1 of the share capital have agreed to his offer by 13 June, then he is legally bound to extend his offer to all remaining shareholders for at least another 3 months, at the same price of £3.00.

(3) If at any time Glazer gets acceptances from shareholders comprising 97.8% or more of the share capital, he then has the right (but not the obligation) to compulsorily buy out the remaining shares at the same price of £3.00.

(4) Those who accept by 13 June will within 14 days get cheques posted to them for their sale proceeds.

To summarise:
. if Glazer does get past 90% by 13 June, as most experts expect him to do, you/we will get a further min. 3 months to decide what to do.
. if he does not get to 90%, he may choose not to extend the offer to save himself £80+ million of borrowings, and those remaining shares are then locked in and will effectively become financially worthless (no dividend, no liquid market exit etc) with symbolic 'resistance' value only. [It looks from the Offer Document that he is hoping not to have to buy everyone out, because this significantly reduces his debt - this should be a significant factor in your decision.]
. on the other hand, if he does not get to 90% there would be 10%+ of shareholders who can potentially be organised for resistance in all the ways we have been looking at (legal challenges etc - we are still reviewing options in this regard).

But to repeat we have to be mindful of people's different interests as well
as their emotions, so we will be trying to be dispassionate and logical about everything we do and say.

As you know, SU is preparing for the establishment of the 'Phoenix Fund', a buyback war chest which can be used in future to get our shares back if and
when Glazer fails. We cannot give financial advice to members or small shareholders about what to do with their shares or their money if they sell, but we are moving towards saying to members that the Board and the Committee who hold private shares and who have shares in SUSS will be taking Glazer's money and putting it into the Fund. In accordance with our aims and objectives, this seems to many of us the best way to continue to keep SU together, to give our members a realistic hope and a dream that we will one day get our club back. Remember the history spirit of United - Sir Matt resurrected the club from the ashes of Munich, we can reclaim our
club from the ashes of the Glazer takeover. The Phoenix Fund gives us the springboard to do just that, but only if we stay united.