ENGLISH soccer team Manchester United set the terms for its US initial public offering (IPO) on Monday, saying it will offer 16,67-million shares at between $16 and $20 each, which values the club at $3,3bn at the top of the range.
Manchester United has been struggling with a hefty debt burden ever since being acquired by the family of Florida-based businessman Malcolm Glazer in 2005.
The club and the Glazers each will be selling half the IPO shares in an offering that will raise as much as $333m. The club's proceeds from the IPO will be used to reduce its debt. The Glazers will remain in a dominant position after the offering with 89,8% of the combined class A and B shares.
The IPO may be a tough sell in the US given the lack of US publicly traded sports teams to compare Manchester United against, and given that many Americans do not regard soccer as a top sport.
The company's latest financials may also give investors pause. Revenue for the fiscal year 2012 is expected to come in at £315m-£320m, down 3%-5% from the previous year, the company said.
Operating expenses also increased 4%-5% as a result of a jump in player and staff compensation.
Shares are highly priced, based on earnings of a range of £21m-£23m in the year just ended. This makes the price-earnings ratio based on both A and B shares a very steep 95 times.
"It could be challenging to justify such strong multiples for a company that needs to spend a lot of money to generate success," Ken Perkins, an analyst with Morningstar, said. "Even if their performance is good, their price may be a bit high."
The details of the sale were announced just as it was revealed that the club had signed a seven-year sponsorship deal with General Motors to have the Chevrolet brand on their shirts, starting in 2014. The deal is worth roughly $600m, Reuters reported.
The club had filed to raise up to $100m in its IPO of Class A stock earlier this month.
Manchester United will kick off a two-week investor roadshow on Wednesday, with stops expected in the US, Europe and Asia, according to a source familiar with the company's plans, who was not authorised to speak publicly about them.
The roadshow stops will be done concurrently, with two separate management teams covering different geographies. One will be responsible for meeting investors in the US and the other will meet investors in Europe and Asia. Pricing is expected on August 9.
The team chose to list in the US after scrapping listings in Singapore and Hong Kong. It had originally looked to raise as much as $1bn in Singapore.
"I'm a little concerned that the offering couldn't be done initially and now all of a sudden it has a heartbeat," said David Menlow, president of IPO Financial, which tracks IPOs. "The mentality with sports teams is that people like owning a piece as a trophy investment, but will it live up to expectations?"
The Glazers also own the US football team the Tampa Bay Buccaneers.
They will retain control of Manchester United after the sale because their Class B shares will have 10 times the voting power of average investors' Class A shares.
Jefferies Group is the lead book runner in the syndicate, which also includes Credit Suisse, JPMorgan Chase, Bank of America Merrill Lynch and Deutsche Bank. The company will list on the New York Stock Exchange under the ticker "MANU".
Morgan Stanley bowed out of bringing the deal to market when Manchester United decided to list in the US.