Man Utd: The takeover maths
Now that the Red Knights have formally appointed Guy Dawson of Nomura to advise them on their plans to bid for Manchester United, there can be no doubt of their serious intent.
Dawson has been one of London’s most prominent corporate advisers for 25 years. And Nomura is Japan’s leading investment bank, by a margin.
So what will Dawson actually do?
Well his first priority is to interview the 50 odd wealthy individuals who’ve indicated to the Knights that they’d provide funds for a bid – to see if money really will follow mouth.
The sums required are not trivial.
Here’s the basic maths.
The Knights would probably leave the £500m of debt recently raised by Man Utd in the bond market in place – so long as bondholders can’t force them to repay (which is by no means certain).
But the Knights would want to buy out the so-called payment-in-kind notes, which is debt whose interest rate is currently an eye watering 14.25%, rising to a penal 16.25% in August.
Redeeming that debt would probably cost more than £230m.
Of course the Knights’ priority is to buy out the equity in the business held by the Glazer family.
The Glazers reportedly invested $495m of their own money into the business – equivalent at today’s exchange rate to £330m.
Since the Glazers aren’t forced sellers, they will presumably demand a hefty premium to what they paid before they even contemplate cashing in.
Let’s assume that they would think about dealing if offered a 50% uplift – which is not an outrageous gain on an investment held for five years.
That would mean the Knights would have to find £500m for them.
Rounding up, that implies that the Knights need to raise £750m in total, to buy out the Glazers and pay off the cripplingly expensive payment-in-kind debt.
Would that be a walk in the park?
Not exactly.
If in the end some 50 deep-pocketed Man Utd fans can be persuaded to stump up, each would have to provide £15m.
Which is quite a lot to pay for a lifetime season ticket.
If David Beckham were to follow up on last night’s sartorial gesture of support for the ousting of the Glazers with a cheque, he might not notice any serious shrinkage in his bank balance. But even in the City of London’s bonus-land, there aren’t that many football supporters keen to invest that kind of sum purely for the love of a club.
Of course it’s theoretically possible that Nomura will be able to demonstrate that there’s lots of money to be made from investing in Man Utd at an enterprise value of £1.25bn (which is the sum of the £750m take-out price and the bond debt).
However, the profitable upside is not conspicuous, given that Man Utd’s annual turnover is just £278m, or less than a quarter of the putative takeover valuation.
Hidden Florence
Most tourists head straight for the Uffizi, but Florence has dozens of smaller museums full of world-class art. The curator of the V&A’s new Renaissance galleries was our guide
Stendhal syndrome is a sickness known to afflict those of a sensitive nature who visit Florence. It’s named after the French author, who was left sick and dizzy by the vast amount of art he viewed on an 1817 visit to the city. There have since been many cases documented of visitors fainting in the face of Florence’s glories. Add in queuing for hours to get into museums such as the Uffizi and the Accademia, jostling for space once in and then peering over heads to catch a glimpse of Botticelli’s Birth of Venus or Michelangelo’s David, and a visit to Florence starts to look a little dangerous for the health.
Inspired by the opening of the Victoria and Albert Museum’s £30m Renaissance Galleries last November, I spent a day in Florence with the galleries’ chief curator, Peta Motture, who convinced me that there are many gems still to be discovered in Florence which illuminate not just the Renaissance but the history of art, all without the risk of fainting. We started at tourist central, Piazza del Duomo, now pedestrianised. But instead of joining the queues to climb Brunelleschi’s dome, we ducked into a smaller building, the Museo dell’Opera del Duomo (9 Piazza del Duomo, +39 055 230 2885, entry €6), where sculptures that once packed the Duomo and Baptistery are exhibited.
“Not many people come here,” Peta promised, “but all the most wonderful original art from the Duomo is here.”
Although just behind the Duomo, the museum was virtually empty. At the top of the monumental staircase stands Michelangelo’s radiant Pietà. It was intended for the artist’s own tomb until, Peta told me, he broke the arm and left leg of Christ in a fit of temper, dissatisfied with the stone. They were later restored – Peta pointed out the cracks, which are still visible. Another work, the beautifully mature figure of Nicodemus, is a self-portrait – Michelangelo himself looming above the other figures, his eyes downcast.
Peta led us upstairs to a gallery at the top where a rust-coloured figure stood alone in the centre of the room, shocking in its bedraggled emaciation. The polychrome wooden sculpture is not what one expects, either from Donatello, its sculptor, or in representations of Mary Magdalene. Hollow-eyed, wearing rags, her hands coming together in prayer, she is an intense figure, almost frightening. Peta explained that this sculpture embodies the dark mood that engulfed Florence at the end of the Renaissance. Savonarola was a hell-fire preacher who thought much Renaissance art was immoral. Donatello had come under his influence, and carved the Magdalene as a beggar, a pitiful figure whose past decadence is clear in the cadaverous lines of her repentant figure.
Emerging into the daylight, we headed for lunch. Teatro del Sale (Via dei Macci 111, +39 055 200 1492), is an intriguing mix of private members’ club, canteen and theatre. Buying an annual membership (€5) allowed us entry, then we paid just €15 to serve ourselves as much food and wine as we liked. After dinner (€30) in the evenings the room converts to a theatre, with entertainment ranging from tango to chamber orchestras.
After lunch, Peta suggested seeing some classic Donatellos, so we headed to what was once the city jail to see the bronze David that scandalised Renaissance Florence with its nudity. The crenellated walls and tower of the Bargello (Via del Proconsolo 4, +39 055 294883, €4) feel squeezed into the narrow streets of the centre. This is Florence’s oldest public building, begun in 1255, and it is said to be where condemned prisoners spent their last night. It is now one of the city’s loveliest museums, being to sculpture what the Uffizi is to painting, only without the queues. The Bargello is serene and quiet, giving plenty of room and time to digest the beauty of the works and the setting. The atmospheric courtyard is the setting for a permanent exhibition of sculptures by masters such as Michelangelo and Cellini, as well as Donatello. On the first floor, in a sweeping 14th-century hall, are some of Donatello’s finest works, including a youthful David in marble, as well as the aforementioned bronze David.
Leaving the Bargello, we wove our way past the shops selling leather in all colours of the rainbow, to a discreet little building near the Arno. A plaque announced it as The Horne Museum (Via de’ Benci 6, +39 055 2466406, €5), another secret Florentine gem. Herbert Percy Horne was a late-Victorian Englishman who came to Florence to study the Renaissance and filled his house with the sort of art that would have been seen in a home of the period. The collection boasts works by key artists such as Giotto, Filippo Lippi and Giambologna, as well as furniture and domestic objects from the period.
Over drinks that evening at the top of the Torre dei Consorti, now home to the Hotel Continentale’s Sky Bar, we discussed Stendhal syndrome, and how we had been spared any such cultural indigestion. We looked out at the river and the Ponte Vecchio on one side, and the illuminated towers of the Palazzo Vecchio and the Duomo on the other. It is easy to be overwhelmed by the sheer consistent beauty of Florence. But Peta had shown me that by concentrating on some of the quieter museums, you can still find yourself standing in front of a dazzling Michelangelo, almost totally alone.
More ways to avoid the tourists
Where to eat
Just 10 minutes east of the overcrowded Piazza del Duomo is the Sant’Ambrogio neighbourhood. There is a covered market for divine Tuscan cheeses and meats. Florentines stop at Cibrèo Caffè (Via Andrea del Verrocchio 5r, +39 0552345853) for a pre-lunch prosecco. Pizza may not be native to Tuscany – neither pizza nor pasta makes an appearance on Cibrèo’s strictly Tuscan menu – but still, competing for the title of best pizzeria is still taken seriously by Florentine restaurateurs compete seriously to be the best pizzeria. This corner is home to the Cibrèo empire – the internationally renowned restaurant where chef Fabio Picchi made his name serving traditional Tuscan dishes, as well as a trattoria, the café and Teatro del Sale (111 Via dei Macci; tel: 055 200 1492), a mix of private member’s club, canteen and theatre. Teatro is squarely aimed at locals, with a nominal membership fee (€5), then a set sum paid at the door for an all-you-can-eat breakfast, lunch or dinner. In the evening the €30 cover price includes not only the best food and wine in town but then converts to a theatre where entertainment can range from a tango show to a chamber orchestra. Antica Porta (via Senese 23, +39 055 220 527) is a buzzing pizzeria outside the Porta Romana on the south side of the river.
Da Ruggero (via Senese 89r, +39 055 220 542), run by the Colsi family for over 30 years, is a classic Florentine trattoria serving the usual Tuscan favourites. Book a table or be prepared to wait in the line that snakes out of the door.
Half an hour south, in the pretty village of San Casciano is Nello (via 4 Novembre 66, San Casciano in Val di Pesa, +39 055 820 163), an unpretentious restaurant with 70s décor but heavenly Tuscan specialities and wine cellar.
Those who really care about their gelato go to Gelateria Badiani (Viale dei Mille, 20r), famous for its Buontalenti flavour – named for the Renaissance architect Bernardo Buontalenti.
Gardens and walks
The centro storico’s towering stone palazzi and narrow alleys fill with tour groups. For verdant space head south of the Arno where the ochre and burnt umber facades are backed by sloping green hills dotted with cypress trees. Head to the Rose Garden (Via di San Salvatore al Monte), tucked behind a small gate en route to the Piazzale Michelangelo and open from May to July.
A truly secret garden also below the Piazzale Michelangelo (on the corner of Viale dei Colli) is the Giardino dell’Iris (open to the public 2-20 May only), which contains row upon row of irises, the city’s emblematic flower, in every imaginable shade.
For Florence’s prettiest “country” walk, take a sharp right out of San Miniato gate onto the Via di Belvedere and along the medieval wall verged with grassy banks dotted with wild flowers. Continue beyond the Forte di Belvedere into birdsong, olive groves and ordered tranquillity. The road leads through the village of Arcetri, with saffron and terracotta-coloured villas, stone walls with tumbles of honeysuckle and the charming church of San Leonardo – a mere 20-minute amble out of town.
• Meridiana (0871 222 9 319) flies from Gatwick to Florence from €59 one way. The Relais Santa Croce (+39 055 2342230), close to all the museums, has doubles from €250, room-only. Further information on the V&A at vam.ac.uk.
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Can taxpayers profit from Northern Rock?
Evan Davis asked me on the Today Programme this morning whether the probability that taxpayers would eventually emerge with a profit on Northern Rock implies that it was a mistake to nationalise the Rock at the start of 2008.
That conclusion can’t be drawn – because the losses that the Rock has suffered over the past two years of almost £1.7bn in total were massively greater than expected by any of the possible private-sector bidders for the Rock.
All the bidders – including the Rock’s own management team – seriously under-estimated the difficulties that the Rock’s borrowers would face in keeping up the payments, especially on the so-called “Together” mortgages (where the combined value of a mortgage and personal loan “package” taken out by customers exceeded the value of their respective homes).
So, for example, the Rock’s management team put together a bid for the bank in early 2008 based on a forecast that there would be losses of just under £200m in 2008 and then a return to profit.
In the event, the Rock has suffered losses on mortgages and loans going bad in excess of £2bn over the past couple of years – or five times more than the Rock’s management and other bidders for the bank expected.
So if the Rock had been kept in the private sector, the capital of the bank would have been wiped out. And nationalisation would have been merely postponed rather than avoided.
What’s more, even if there hadn’t been a formal transfer of the equity to the public sector, this bank was on life support from taxpayers – with around £30bn of taxpayer loans at the peak and a formal state guarantee against losses covering its entire £100bn balance sheet.
Which means that keeping it in the private sector, in the sense of ownership of the equity, would have been something of an accounting charade
In fact, some would say that if there’s eventually a profit for taxpayers from taking full control of the Rock, that would be a vindication of the decision to nationalise – for two reasons.
First, that the business would arguably have haemorrhaged more without the explicit backing of the state.
Second, and more importantly, the nationalisation of the bank has permitted an exceptionally efficient reconstruction of Northern Rock with regard to its additional capital needs.
This reconstruction involved splitting the Rock in two: as of this year, there exists a new smaller retail bank, with just £10bn of mortgages on its books and £19.5bn of retail deposits – making it one of the most prudently financed banks in the world – and an “asset manager” which holds some £50bn of older mortgages.
The retail bank, called Northern Rock, will be privatised, probably later in the year. And the asset manager will stay in the public sector.
That asset manager will no longer take deposits. So it requires less capital to underpin its assets as a cushion against possible future losses.
This is a long-winded way of saying that net new investment by taxpayers in Northern Rock since privatisation will emerge at around £1.6bn in total – which is the amount that taxpayers would have to get back to avoid making a loss on the nationalisation.
Is it conceivable that £1.6bn could be raised from the combination of the privatisation and the repayments over many years of the mortgages held by the nationalised asset manager?
Yes, that is possible – if not inevitable.
But it will be years before we know.
Which is not to say that there are no more difficult decisions on the Rock for whoever forms the next government.
The most tricky will be whether maximising proceeds from privatisation is paramount.
There are plenty of voices – especially in the Rock’s North East home – calling for the new Rock to become a mutual once more, a vanguardist for a new generation of conservatively managed building societies.
The appeal of creating a new super-prudent, customer-owned savings-and-loans institution would be obvious to many – except that if the Rock were mutualised rather than sold, taxpayers would probably end up suffering a loss.
Lehman: How $50bn was buried in London
$50bn is not a trivial sum to hide from investors, creditors, rating agencies and the US government.
Which is why the assertion by a US court-appointed examiner that Lehman used an accounting ruse to keep from public view some $50bn of loans and investments – and thus appear to be taking fewer risks than was really the case – is a serious charge.
To be clear, the examiner does not say that this device was responsible for Lehman’s collapse. Its demise stemmed from its excessive investments in the US commercial property market and its dangerous reliance on short-term finance that could and was withdrawn.
However Lehman might well have collapsed earlier if the full extent of its loans and investments had been in the public domain.
Which is why it is at the very least highly embarrassing for Ernst & Young that the examiner says that global accounting firm is liable to claims for damages because of its alleged “failure to question and challenge improper disclosures” by Lehman.
And the examiner also says claims can be made against Dick Fuld, Lehman’s erstwhile chairman, and a trio of its former chief financial officers.
Lehman’s creditors and investors will be studying the examiner’s report in a forensic way, to assess whether they should sue those criticised in the report.
Meanwhile there is also some unattractive publicity for the London law firm Linklaters and for the now controversial light-touch regulatory culture that existed in the UK till recently.
The examiner says that the so-called “Repo 105″ programme that allowed Lehman to hide that $50bn of assets was not permitted by any US law firm.
So Lehman obtained an “opinion letter” from Linklaters in London that said the relevant deals were permissible under English law – and the relevant transactions that hid the assets were then conducted through Lehman’s London operations.
There’s no suggestion that this was illegal or in breach of any rules.
But some would say it is unedifying that the deals that buried the $50bn of assets were not permissible on Wall Street but could be done in London.
US Traders Dislike Greek Bailout Package
Well, it didn’t take long for me to get the emails started telling me how wrong I am, again… WOW! Of course, I wonder where these people have been the last nine years, as when nine years ago I was the first writer to issue a whitepaper calling for the long-term downtrend for the dollar… [...]
US Traders Dislike Greek Bailout Package originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”