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I have always been passionate about investing in companies that mean something to me. Whether you’re a company creating fantastic products or developing amazing solutions, investment is the fuel that makes change happen. Owning shares in a sports team is no different. With man utd (NYSE:MANU) Stocks Rise, Is It An Investment I Should Consider?
Context
Manchester United is one of the world’s largest sports franchises, with historic success in English and European football competitions. Owned by the Glazer family since 2005, the company is 90% private and 10% listed on the NYSE (New York Stock Exchange).
Ownership has become increasingly unpopular as the team underperforms on the pitch and hasn’t won trophies since 2017. At the same time, rival teams invested heavily in their respective teams, stadiums and facilities, catching up and surpassing gradually to Manchester United.
In 2022, the company was put up for sale.
Who takes charge?
Currently, there are two favorites. One of them is the founder of INEOS and Britain’s richest man, Sir Jim Ratcliffe, and the other, Sheikh Jassim Bin Hamad Al Thani, Chairman of the Qatar Islamic Bank.
Whoever takes the helm is likely to become the most expensive acquisition of any sports team in history. But is it now an investment opportunity?
There is widespread speculation about an eventual acquisition price, with estimates ranging from £3bn to £7bn. With the share price currently at $26.33, a successful takeover could send the shares over $30, as the £5bn takeover would value the shares at $30.47.
However, with the possibility of objections due to human rights issues in Qatar, or an unsavory proposal to increase the company’s £680m debt, there are no guarantees. Speculation that the Glazer family may secure investment from US hedge fund Elliott Management adds to the possibility that the current owners may retain control.
As a result, potential investors need to be comfortable with the possibility that a deal could fall through or be significantly delayed.
Fundamentals
Takeover speculation has fueled excitement in the share price, nearly tripling since July.
However, the company’s fundamentals are poor. Manchester United are unprofitable, have unsustainable debt and have less than a year of cash flow. Without intervention, this is unlikely to change.
Manchester United lost £126 million in the last year. By considering the future cash flow, a fair value of $5.78 is calculated. As a result, the stock could be overvalued by as much as 355%!
General
An investment in Manchester United on current fundamentals is, in fact, speculation on a successful acquisition.
If the prospective buyers pull out, the share price would suffer greatly. Some comparisons can be made to the Twitter acquisition of 2022. In both cases, the difficult fundamentals may be overlooked by a passionate buyer, motivated to address the issues, regardless of the cost.
For my portfolio, I see an opportunity to buy shares at a price below the final purchase price. But I am aware that if the deal were to collapse, I would be facing a major decline.
The purchase of Newcastle United by Saudi Arabia’s Public Investment Fund (PIF) in 2022 suggests a deal is likely, but not without objections, possible delays and several unexpected twists. I have added a small number of Manchester United shares to my portfolio, but I will keep an eye on the details of the acquisition.
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