Downfall: How the Glazer’s destroyed United

A mate of
mine recently started working in banking and to my surprise; one of the first
things he learnt about was the leveraged buyout of our club. So standardly I asked
him/forced him to feed me his knowledge.

I’m not
sure how many of you out there know the ins-and-outs of how we came to be in
this mess, but I found his email ridiculously interesting and nicely cleared up
a few things for me.

Anyway, for
those of you who literally sat there and watched it all unfold in 2005 – but weren't
exactly sure why or how it was happening – hopefully this’ll clear up a couple
of things…

The Downfall
of Man United,

by Andrew Webb.

So, the story of Man United goes a bit like
this...

Man Utd is a public company, which means that
it is owned by the shareholders. Because it is listed on the stock exchange,
anyone can buy shares in it.

Malcolm Glazer owns some sort of Private
Equity or Venture Capital Firm (i.e. he is not a man, he is a business). So one
day Glazer approaches the Man Utd shareholders with a proposition to take over
the club. Now here's the bit that you fans won't like: in order to buy the
majority stake in the club Glazer needed 75% of votes, which means that 75% of
your shareholders were happy to sell to Glazer - basically your shareholders
started the whole thing. Glazer would have offered the shareholders a price
that was too good for them (in their opinion) to not accept.

Once you own 75% of a
corporation, it's very easier to take over 90% of the shares. And
once you have 90% if the shares, by law, you are allowed to buy out the
remaining 10% to give you 100% of the corporate shares... i.e. you own the
company.

The only thing to add as a side note on
shareholders is that shareholders tend to be comprised of institutions (large
companies, corporations etc). Retail shareholders - who are people like you and me - only
own maybe 10% of a company. I guess what I'm saying is that your fans didn't
sell out, but the companies who invested in Man United did.

So Glazer approaches a bank/s asking for a
sum of money to buy Man Utd. I think it was around £900million, but to keep things
rounded we'll just it was £100m. The banks then say "we'll give you an £80m loan and you can fund the last £20m yourself". What this means is that
Glazer is motivated to make Man Utd a success because he's putting 20% of his
own money in. Clever stuff.

Anyway, Glazer buys Man Utd with the £100m that he's got from his own wallet and the bank loan. But this has meant that
Glazer is now £80m in debt. Not good for him. But because he is the owner of
Man Utd, he transfers this £80m of debt to the club. So Man Utd is now made
up of £20m cash, and £80m debt. Not good for the club.

So just like me or you taking out a loan, Man
Utd not only has to pay back £80mil, but also the interest on top. So anything
that Man Utd makes (in terms of tickets sales or merchandise profit) is paying
off the debt that Glazer has put upon you.

And to finally make things worse, Glazer has
cleverly made himself richer out of the buy out. We weren't too sure on the
logistics, but we think that Glazer's two sons have been made shareholders.
When you're a shareholder you can receive dividends (which are basically a
monetary reward for holding shares in a company - kinda like eating the free
bread sticks at a restaurant whilst waiting for the mains i guess).

The dividends
are calculated by the management and majority stakeholders (dividends come from
profits that the company makes, so funnily enough shareholders don't want too
many/much dividends to go to them as it's taking profit that could otherwise
make the company grow). The majority stakeholder is of course Glazer. So not
only has Glazer funded Man Utd with debt (I think the real figure is around
£600mil - not the £80mil I've been chatting about), but any profits that are
coming in are paying off this debt, and also paying dividends to his sons! So
rather than Man Utd growing, it's selling off players and giving profits from
other areas to simply pay off a debt that has no purpose for existing except to
make one rich man (and his family) even richer.

The final nail in the coffin is that because
Glazer has transferred his initial £80mil loan across to the club, technically
he can sell Man Utd and walk away debt free.

Hope this helps...