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I’ve always been passionate about investing in companies that mean something to me. Whether this is a company building great products, or developing amazing solutions, investment is the fuel that makes change happen. Owning shares in a sports team is no different. with Manchester United (NYSE: MANU) Stock Prices Are Rising, Is It An Investment For Me?
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Manchester United is one of the biggest sports franchises in the world and has enjoyed historical success in both English and European football competitions. Owned by the Glazer family since 2005, the company is 90% private, with 10% listed on the New York Stock Exchange (NYSE).
Ownership is becoming increasingly unpopular with the team performing poorly on the pitch, not winning any trophies since 2017. At the same time, rival teams have invested heavily in their squads, stadiums and facilities, gradually catching up and overtaking Manchester United.
In 2022 the company was put up for sale.
Who is taking over?
At present, there are two frontrunners. One of them is the founder of INEOS and the richest man in Britain, Sir Jim Ratcliffe, and the other is Sheikh Jassim bin Hamad Al Thani, Chairman of the Board of Directors of Qatar Islamic Bank.
Whoever takes the helm, it will likely become the most expensive acquisition of any sports team in history. But is now an investment opportunity?
There is widespread speculation as to the eventual takeover price, with estimates ranging from £3-7 billion. With the current share price of $26.33, a successful takeover could push the shares above $30 since the £5 billion takeover would value the shares at $30.47.
However, with the potential for objections over human rights issues in Qatar, or an unpalatable proposal to increase the company’s £680m debt, there are no guarantees. Speculation that the Glazer family may secure an investment from US hedge fund Elliott Management adds to the possibility that the current owners will remain in control.
As a result, potential investors should feel comfortable that the deal may collapse or be significantly delayed.
The basics
Takeover speculation has stirred excitement in the share price, which has nearly tripled since July.
However, the company’s fundamentals are weak. Manchester United is unprofitable, has unsustainable debt, and less than a year’s worth of cash flow. Without intervention, this is unlikely to change.
Manchester United lost £126m last year. When considering the future cash flow, the fair value of $5.78 is calculated. As a result, the value of shares can reach 355%!
Total
Investing in Manchester United with current fundamentals is an effective speculation about a successful takeover.
If potential buyers back out, the stock price will suffer greatly. Some comparisons can be drawn to the 2022 Twitter acquisition. Either way, the shale fundamentals may be overlooked by the eager buyer, motivated to address issues, no matter the cost.
For my portfolio, I see an opportunity to buy shares at a price lower than the final acquisition price. But I realize that if the deal falls through, I will be in for a huge downturn.
A purchase of Newcastle United by the Saudi Public Investment Fund (PIF) in 2022 suggests a deal is likely, but not without objections, potential delays and many unexpected twists and turns. I have added a small number of Manchester United shares to my portfolio, but I will pay close attention to the details of the acquisition.
