What does Soros know that we don’t?


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Last week, George Soros made a rather unlikely investment. The billionaire financier — best known as ‘the man who broke the Bank of England’ by betting against the pound back in 1992 — decided, for reasons best known to himself, to buy 3.1 million A shares in Manchester United. So what does Mr Soros know that we don’t? Probably quite a lot, given that he has an estimated net worth of more than $20bn, and I am sitting on a cash pot of, well, rather less.

Like another recent high-profile IPO - that of Facebook — Manchester United’s performance on the New York Stock Exchange has been poor. The Glazer family, which owns the English Premier League side, opted to sell 10 percent of the club in a bid to pay off some of the debt accrued when they took control of the team in 2005.

Manchester United shares opened at $14 on August 10, but by the middle of last week had dropped to close to $13 — a fall of nearly 7 percent. As with Facebook, it seems that IPO underwriters must again take responsibility for some pretty poor valuations. While the Glazers were hoping that the stock would go on to reach $20, Wall Street observers clearly felt otherwise.

Independent financial analyst PrivCo highlighted the practice of ‘stabilising bids’ — whereby underwriters make hefty bids in the first few days of a listing to try and prevent the price from plummeting. But that’s not the end of the bad news when it comes to those who have invested in Manchester United stock.

“Manchester United’s valuation using several accurate valuation methodologies is a mere $4.97 a share, only about one-third of its $14 a share offering price (which is also the price at which it closed its first trading day, but only because IPO underwriters placed large open-market bids at $14 a share to prevent the stock from closing below the IPO price),” PrivCo said back in the middle of August.

That $4.97 price hands Manchester United a rough valuation of $800m — rather less than the $3.3bn for which the Glazers were holding out. That figure also looks pretty worrying considering the debts held by the club amount to around $658m.

Enter Mr Soros. His purchase of around 8 percent of the listed shares (worth around $40m at closing price at the beginning of last week) make him the proud owner of a nearly-2-percent stake in the club. Mr Soros has been linked with football clubs before; he tried and failed to buy Italian side Roma back in 2008. Needless to say, the hedge fund magnate has not been forthcoming about why he bought the stake, leaving analysts scratching their heads. Is he expecting a massive jump in the club’s earnings from media rights? Does he see greater merchandising returns from Manchester United’s vast global fanbase? It all seems a bit high-risk, particularly given the club’s unstable finances.

The influx of cash from Gulf-based investors has made it all the more difficult for United to attract top-drawer talent. And if results on the pitch start to deteriorate, a distinct possibility should manager Sir Alex Ferguson confirm his retirement in the next couple of years, then Manchester United shares will be worth next to nothing.

Despite all that, Manchester United is still one of the most recognisable brands in the world, as the Glazers are well aware. Rarely a month goes by without the club being linked with uber-rich buyers in the Gulf. If a strong bid comes in from an outside purchaser, Malcolm Glazer — who is at heart a man with an eye for a profit — would be quick to sell up. That possibility, rather than the shaky potential for long-term gains, could well be what Soros is betting on.

Ed Attwood is the Editor of Arabian Business.

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Posted by: Mind over matter

Perhaps Mr. Soros is enamored merely with the idea of owning part of a trophy football club. Some of the best and brightest investment minds can have an emotional blind spot.

Posted by: Former banker and current investor

"IPO underwriters must again take responsibility for some pretty poor valuations"

You must be confused on the role of underwriters. Let me help you, their role is to maxmize share price at offering and they did as it benefited the exiting shareholders. Their sole responsibility is to extract the best valuation out from the buyers/bidders (who are sophisticated institutional investors) during the book building process . If the buyers overpaid, it's their own fault for not doing their homework and/or playing on the IPO hype of a high profile company (like facebook and ManU). The underwriters and management of company present a story and investment thesis. Buyers need to do their DD.

Linkedin IPO is a classic example of underwriters leaving ridiculous amount of money on the table and not getting the best value for exiting/selling shareholders

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