The Biggest Team in the Universe is an Emerging Growth Company
It’s a rare day when I can say, with unadulterated smugness, “I was right.” So today is doubly rare, as I can say it twice.
Manchester United – the world’s most valuable sports team, adored by estimated 659 million fans, winner of numerous Premiership titles, FA Cups, and Championship League titles– is going public. In America. As an Emerging Growth Company.
And I called it. Back in May, I said that European companies would increasingly turn to America to do their IPOs, given the EU’s push towards greater shareholder accountability. Before that, I noted that the definition of an Emerging Growth Company as any company with under $1 billion in revenue meant damn near every company doing an IPO would be an EGC.
There’s nothing emerging or growing about Man U. It was founded in 1878. To grow its fan base, Man U would need to find the lost tribes of the Amazon. This isn’t even Man U’s first time going public (nothing initial about this IPO) – it was previously listed on the London Stock Exchange until Malcolm Glazer privatized in an leveraged buyout a few years back. If Manchester United is an EGC, the JOBS Act needs be amended to rename Emerging Growth Companies as “Pretty Much Anyone Not Already Public In America Company” or PMANAPIAC for short.
Now, there are more reasons why the devilish denizens of Old Trafford are setting up shop on the NYSE. In America, unlike Europe, dual-class share structures are perfectly fine and popular with massive companies controlled by its founders (Facebook has a dual-class structure). Dual-class shares give some shareholders voting preferences over others. In the Man U deal, the Glazer family will get 10 votes for each of their stocks, whereas the participants in this IPO will get 1 vote per share. That way, control of the company remains private, despite it being nominally public. Normally NYSE rules require listed companies to have boards with a majority of independent directors, but that rule is waived for controlled companies, like Man U.
Man U isn’t the only famous, venerable brand that has recently announced its emergence and growth: Fender, as in the bad-ass guitars, announced its EGC IPO in May. Keep in mind that Fender's been around longer than the Rolling Stones, yet it's still emerging.
Finally, to go wonky for a second, the popularity of EGC status, which allows companies to disclose less information for 5 years, proves that the theory that investors will discount based on less disclosure is bumpkis. Some finance nerds have argued that companies that take advantage of weaker disclosure rules end up hurting their stock price because investors will avoid them. It’s one of those theories that sounds really good until you remember that the only people who read prospectuses and 10-Ks are the lawyers who drafted them. For every one investor who will avoid Man U because it’s registration statement will report the last two years of audited financial statements instead of three there will be another dozen who buy Man U because WAYNE ROONEY IS A BEAST. The dual-share voting structure will deter serious investors, though, who won't like the idea of being unable to toss out management if they don't perform well (management, by the way, means Glazer's two sons).
Personally, I will not be buying stock in Man U. Not because they are using most of the IPO proceeds to pay down the huge debt from the LBO. Not because I'll be stuck with Americans running an English football team. Not even because the soccer labor market pays players unsustainable and ludicrious sums of money. No. I won't buy Man U because I'm a gooner.