LONDON (Breaking Views) -
It's about time someone made a bid approach for Manchester United.
For more than 18 months now, a motley collection of rich men have been quietly building big stakes in the UK soccer club, fueling speculation of a takeover.
Manchester United recently said it had received a bid approach from an unidentified bidder. The UK football club said the approach contained a number of "significant conditions," and it was not definite that an offer would materialize.
It's not clear who is behind the approach now. But all bets seem to be on Malcolm Glazer, the American owner of the Tampa Bay Buccaneers.
Weekend reports said Glazer had hired JP Morgan to advise him on a £650 million bid. Glazer already has a 19.2 percent in Man Utd. Irish race horsing tycoons John Magnier and JP McManus own 28.9 percent.
Man Utd is certainly a mouthful, even for Glazer. The shares have more than doubled since bid speculation began, valuing the club at £670 million. That is an extraordinary 45 times 2005 consensus earnings, and way above any of the UK media sector's top picks.
It also looks rich considering the piece of Man United's income that allows it to be seen as a media stock -- the sale of the television rights to its matches -- has fallen this season on the back of poor performance on the pitch.
But even if any premium is small, Glazer may find it tricky to finance the bid. He may be able to sell his holding in the Tampa Bay Buccaneers, although this doesn't look likely. Or he might raise some cash from selling part of his property portfolio in the United States, which has been on the block for some time. It isn't clear how much equity he can raise.
Whatever shortfall would have to be debt-financed. Man United, unlike most football clubs is debt-free. Its revenues look somewhat more stable than rivals thanks to some pretty shrewd long-term contracts with merchandisers. But with just £45 million of forecast ebitda, it would struggle to raise much more than £150 million.
Man Utd's property is worth around £270 million, and Glazer might be able to borrow against half of that. He may also be able to securitize some of Man United's media contracts -- such as the 13-year deal with Nike.
Taken together and at a stretch, Glazer could probably muster £300 million - £400 million of debt.
That would mean Glazer would be buying into yet another heavily indebted UK football club, which is not exactly a distinguished hall of fame.
Shareholders in Leeds United -- another famous old club -- were wiped out when the team went bust. But given its strong brand, Manchester United probably looks a safer bet than most.
Breakingviews is Europe's leading financial commentary and analysis service. Its team of journalists comments on the most important financial stories of the day, as they break.
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