Outlook: Glazer won't be so easy to reject this time

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The Independent Online
THE LAST time Malcolm Glazer made a bid for Manchester United, the whole thing collapsed in disarray after Mr Glazer went through with his threat to remove three directors from the board. This was understandably regarded as a declaration of war by his main financial backer, JP Morgan, which would only bankroll the bid it could be done on a friendly, agreed basis. JP Morgan promptly resigned and the bid was dead in the water.

Still, where there's a fee there's a way, and JP Morgan is now fully back on side with a new offer it hopes will be harder for the the board to reject. The last bid was turned down because it was highly leveraged. All other things being equal, the price was probably high enough to be recommended, but the financing meant taking into account the interests of other stakeholders, notably the fans. Throughout its recent history, United has had little if any debt, which arguably allows it to keep gate prices lower than is generally the case with other top Premiership teams, and leaves plenty of money for player acquisition. This happy disposition might have been jeopardised by a takeover largely financed by debt.

We know little about the new offer thus far except that it is pitched at the same level as last time and is said to have a lot less debt. Yet debt is in the end only a form of security, and if there are other instruments Mr Glazer is using which carry financial obligations, such as preference shares, directors might reasonably wonder if there is really any difference. The last bid was about pounds 500m debt financed. The latest proposals carry a minimum pounds 250m of preference share finance, which would be fully redeemed after two or three years. Not so much debt then, but still, in effect, quite a bit.

What's more, private equity takeovers only work if they can gain 100 per cent ownership of the company. Financiers won't provide the backing if there are other calls - say a small minority shareholding - on the company's assets. That's why private equity takeovers are nearly always conditional on board agreement and on the acceptance of more than 90 per cent of the equity, which allows for compulsory purchase of the rest.

Mr Glazer can probably count on the support of at least 83 per cent of the share capital, including his own near 30 per cent stake. John Magnier and JP McManus are almost certainly sellers at Mr Glazer's mooted price. There may be other loose holders that he can rely on too. The fly in the ointment, as far as the Tampa Bay sports tycoon is concerned, are the fans, who may collectively own most of the rest. Many of these "supporter" shareholders are not in it for the money, only for love of the game and the club. Quite a few of them won't accept even if the board recommends. Directors face a tough call.