Market says Ratcliffe overpaid for Manchester United

The sale of Manchester United Plc was finally concluded on Christmas Eve with UK chemicals billionaire Jim Ratcliffe agreeing to buy the club at a price of $6.4 billion including debt.

By Matthew Brooker

It’s a long-running soap opera about a faded British institution that started to drag after some entertaining early episodes and was overdue to be wound up.

The sale of Manchester United Plc was finally concluded on Christmas Eve — more than a year after the controlling US Glazer family signaled, they were open to offers — with UK chemicals billionaire Jim Ratcliffe agreeing to buy a minority stake at a price that values the club at $6.4 billion including debt. It’s a denouement that doesn’t quite deliver on the saga’s early promise.

The Glazers can take some satisfaction from the valuation, which compares with the record $6.05 billion that a group led by Apollo Global Management Inc. co-founder Josh Harris agreed to pay for the National Football League’s Washington Commanders in April.

That was the largest amount ever paid for a professional sports team (even if other US sporting franchises that haven't changed hands recently are estimated to be worth more).

The sale also values Manchester United at a significant premium to its London rival Chelsea FC, which a group led by US businessman Todd Boehly and Clearlake Capital bought last year for about $3.1 billion.

On the other hand, Ratcliffe is acquiring only a 25 per cent stake and the $5.4 billion equity valuation falls short of the target the Glazers were said to be seeking.

The epic takeover battle that some had predicted never materialised. Ratcliffe, founder of Ineos Group Holdings SA, and a Qatari consortium led by Sheikh Jassim bin Hamad Al Thani were the only serious bidders to emerge (Elon Musk at one point tweeted that he was buying the club, before clarifying that he was joking).

The sellers did their best to inject some drama, setting a series of seemingly arbitrary bidding-round deadlines.

The Qatari group dropped out after Sheikh Jassim’s father, who is also the emirate’s prime minister, told Bloomberg he wasn't a fan of football investments in the Premier League. The group had made it clear it wouldn’t overpay.

The valuation sought by the Glazers always looked ambitious. It still does. The best illustration of this is the market reaction. Manchester United shares rose 3.4 per cent to $20.52 in New York on Tuesday, the first day of trading since the deal was announced.

That’s a limp endorsement considering Ratcliffe just agreed to pay $33 a share, a 66 per cent premium to the closing price Friday.

The club’s current market capitalisation is $3.4 billion, which shows the sharp difference of opinion between how equity investors on one hand assess the company’s worth and the Glazers and Ratcliffe on the other.

Of course, the stock may just be starting its rally (though so much for the efficient markets hypothesis in that case). As things stand, investors will be able to tender a quarter of their shares for 61 per cent more than where they are presently trading.

For Ratcliffe, there’s a logic in paying this premium. The Ineos chairman would surely have preferred to buy the club outright, but the price expectations of the Glazers rendered that impractical.

The result is a curious hybrid transaction, where a minority investor is paying a control premium — and receiving a measure of control in return. Under the deal, Ineos will take responsibility for the management of Manchester United’s football operations, according to a club statement.

That should suit both parties, as well as the fans. Ratcliffe is from the area and proclaims himself a lifelong supporter (even if he did try to buy Chelsea last year), so he will put priority on returning the club to its sporting glories rather than maximizing investment value.

Manchester United has an illustrious past, having won more English league championships than any other team and been home to legendary players from Bobby Charlton and George Best in the 1960s to David Beckham and Cristiano Ronaldo in the 1990s and 2000s.

Its fortunes have declined in recent years, though, and many fans blame the owners for loading the club with debt and failing to invest (in fairness to the Glazers, they weren’t helped by the retirement a decade ago of Alex Ferguson, one of the greatest British football managers).

The family has done well from its investment since the late Malcolm Glazer took control through a leveraged buyout in 2005.

The sale process itself might also be viewed as a canny piece of business promotion. The shares were trading at a record low of $10.51 in July 2022, a month before Bloomberg News reported that the family would consider selling a stake. The stock has almost doubled since then, adding more than $1.6 billion of market value.

On-field glory isn’t essential for business success in football. Unfortunately for fans, it’s the part that matters. They will at least feel they have an ally in the boardroom now.