Glazer saddles United with £540m debt: but Ferguson is to stay 'at least for now'

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The spectre of astronomical debts haunted the world's biggest football club last night as details emerged of the deal thathanded an American tycoon control of Manchester United.

The spectre of astronomical debts haunted the world's biggest football club last night as details emerged of the deal thathanded an American tycoon control of Manchester United.

Malcolm Glazer, the 76-year-old businessman who took over the Old Trafford giant on Thursday, sent fresh shockwaves through the club's huge fan base when he unveiled the full funding details of his £790m takeover.

He confirmed that he will borrow £540m to finance the deal and it is estimated that he will need to spend £46m a year in interest payments alone to service the debt. That equates to a staggering £126,164 per day before any capital repayments are made. The prospect of massive debts has been the main cause of trepidation among fans, who are also dismayed that a foreign tycoon with no background in football is on the verge of total control of their historic club.

The interest payments are put in starker perspective when compared with United's profits. The projected payments of £46m a year are more than twice the club's annual profits of £19.4m for the whole of the last full financial year, to July 2004. The figures suggest that Mr Glazer could need to quadruple United's profitability to keep the club financially viable.

Precedent shows financial collapse is a possible result of over-borrowing. Leeds United were pushed to the brink of insolvency and then relegated from the Premier League last year as a result of a £60m loan they proved unable to service.

By last night, Mr Glazer had raised his stake in United to 74.8 per cent. That brings him to within a whisker of the 75 per cent holding he needs to take full control and delist United from the stock exchange. "We will definitely get to 75 per cent by Monday," a source said. Mr Glazer sensationally snatched majority control of United on Thursday by adding the 28.7 per cent stake of the Irish racing magnates John Magnier and J P McManus to the 29 per cent he already owned.

Mr Glazer's 300p-per-share offer to the remaining stakeholders will now be circulated. The formal bid document makes it clear that Mr Glazer is hopeful of soon reaching a 90 per cent ownership threshold, and that when he has done so, he intends to trigger a compulsory purchase order on the rest of the stock.

Mr Glazer's son Joel, who will be the figurehead in day-to-day control of the family's interests in United, said: "We are delighted to make this offer to acquire one of the pre-eminent football clubs in the world. We are long-term sports investors and avid Manchester United fans. Our intention is to work with the current management, players and fans to ensure Manchester United continues to develop and achieve even greater success."

A source close to the Glazers said the reference to management was meant "in the widest sense", and that the Glazers wanted United's chief executive, David Gill, and manager, Sir Alex Ferguson, to remain in situ, "at least for the moment".

The source confirmed that neither Mr Gill nor Sir Alex have been asked about their intentions, however, and the Glazers are not taking for granted that either will stay.

Both have made it clear, tacitly, that they oppose a Glazer takeover. Neither has commented publicly on their intentions in the past few days. Both could argue a case for leaving now, saying they cannot work with a family whose priority is pure profit. United have traditionally consulted widely with fans on everything from ticket prices to community involvement. Yet both could convince themselves to stay, knowing that Mr Glazer needs them for a PR blitz on fans and would pay handsomely if they helped to smooth a rocky transition period.

Mr Gill convened a staff meeting yesterday, attended by 300 club employees, in a suite at Old Trafford. He spoke about a variety of issues relating to how pensions and employment rights might be affected under a Glazer regime. He also "promised to keep communicating" with staff on developments, but made no specific reference to his or Mr Ferguson's position.

Under complex funding arrangements, the Glazer family will provide £272m of equity for the takeover, as well as borrow £265m from banks and raise another £275m from "preferred securities", or special shares. City analysts with experience of similar deals said Mr Glazer will pay about 7 per cent annual interest, or £18.55m, on the bank loans.

Mr Glazer has confirmed that the £265m bank loans will go directly on to United's balance sheet as debt and will be secured directly against the club's assets. The preferred securities will also be costly. They typically involve a special yearly dividend of between 10 and 12 per cent to the lender. Even using the lower end of that scale, Mr Glazer will need to repay some £27.5m in effective interest, making a total of £46.05m in annual interest.

"We now know how much debt he has taken on," said Sean Bones, the vice-chairman of the anti-Glazer campaigning group, Shareholders United, which hopes to wreck Mr Glazer's business plan by urging fans not to spend their money on the club.

"We know he has massive repayments to service and we are confident we can affect club turnover to such an extent it will be impossible for him to continue," Mr Bones said. "We are urging all supporters to boycott club merchandise and even refuse to buy a pint and a pie inside the ground on match days. Sponsors' products should also be avoided and eventually we hope the message will get through."

Other fans scoffed at Joel Glazer's statement citing his United allegiance. "That statement is an insult to human intelligence," said Mark Longden, a spokesmen for the Independent Manchester United Supporters' Association. "Does this guy really think anyone will actually believe him? Maybe it should not be a surprise given what has gone before, but the ignorance of the Glazers about ordinary Manchester United fans is truly astonishing."

Despite Mr Glazer's huge debt-piling, some financial experts believe that United's new owner has a decent chance of dramatically improving United's financial fortunes.

"A serial entrepreneur such as Glazer and his backers would not borrow large amounts of money unless there was a sensible way of recouping it," said Joe McLean, a football finance specialist within Grant Thornton's Recovery and Reorganisation team. Such ways, added Mr McLean, include ticket price hikes, brand expansion across Asia and America, and a revolutionary attempt to discard current collective television rights' deals and, long term, seek new world-wide solo television deals based around radical international leagues.

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