☀️☕️ Trophyless and Ronaldo-less Manchester United on the block

24 November 2022

Happy Thursday, and Happy Thanksgiving to our American friends!

US large-cap S&P 500 closed 0.59% UP ▲ Tech-heavy Nasdaq Composite closed 0.99% UP ▲ Pan European STOXX Europe 600 closed 0.6% UP ▲ HK’s Hang Seng Index closed 0.57% UP ▲ Japan’s Nikkei 225 closed 0.61% UP ▲ 


FOMC Minutes


Trophyless and Ronaldo-less Manchester United on the blockCovid lockdown-related violence at iPhone 14 plant

📖   MoneyFitt EXPLAINS

🎓 Leveraged Buyouts (LBOs)


Minutes of the November 2nd meeting of the Federal Open Markets Committee (the bit of the US central bank that sets interest rates eight times a year) were released today and (1) showed a “substantial majority” of voting members supported slowing down the pace of interest rate rises soon and (2) that some warned that monetary policy would need to be tightened more than expected next year. These were almost exactly what Federal Reserve Chair Jay Powell said as he summed it all up on the day, right after that fourth consecutive 75 basis point (0.75%) rate hike, so you would be forgiven for expecting markets to have priced it in, by now. And you’d be wrong! US markets rose overnight, focusing on the first part and largely ignored the second.

IMAGE CREDIT: The MoneyFitt Morning, 3rd November 2022

Back on November 2nd, an FTX and a bit ago, the S&P500 rose a bit when JPow said the first part and then reacted quickly to the second by dropping 3.5%. The index closed on Wednesday 7% above where it was at the end of that day.


Trophyless and Ronaldo-less Manchester United on the block

The American Glazer family, who own Manchester United (MANU), are considering selling the club. They bought it for £790m in 2005 and sold 10% of the company when it was listed on the NYSE in 2012. The Glazers bought the club in a classic leveraged buyout 🎓(LBO) that has been criticised by fans sore at a five-year trophyless run for loading debt onto the club (£275 million at the time, but now almost double that) while the owners pulled out cash in dividends and chose not to renovate or redevelop the storied Old Trafford stadium. But that’s the nature of LBOs!

The family is reportedly looking for a valuation of between £6 billion (US$7.2 billion) and £8 billion, making it the most expensive sporting institution ever, and far higher than the £2.5 billion paid in May (plus a £1.8 billion investment commitment) for Chelsea by a consortium fronted by Los Angeles Dodgers part-owner Todd Boehly. It would come to a very high 50 times this year’s expected earnings before interest, tax, depreciation and amortization (which, you may be horrified to hear, market types call “eebitdah”.) Fans may be happy to add losing the Glazers to the trophies they’ve been losing, but any new buyer may need to be even more aggressive in wringing out returns from the company and may well take on even more debt to do so. (Unless funded by abundant natural gas reserves, of course.)

It’s obviously a huge gain for the family over the purchase price 17 years ago, even excluding the fees and dividends since then. The shares rose 26% on the news and even after the gain, the club had a market value of US$3.1 billion, perhaps reflecting that the “strategic alternatives” they are considering may not directly benefit all shareholders. (The Fenway Sports Group, which is looking to sell unlisted Liverpool Football Club, will be watching closely.)

Covid lockdown-related violence at iPhone 14 plant

Reports are emerging of hundreds of workers protesting at a “closed-loop” campus run by Foxconn (listed as Hon Hai Precision, a Taiwanese company) where workers are kept isolated from the outside world as part of China’s zero-Covid policy.

These protests followed weeks of turmoil and a mass exodus of employees from the factory over Covid controls and shortages of food and medicine. Scenes were live-streamed (until halted and then taken down by censors) on various platforms showing the protests, including workers flipping over carts, smashing a Covid testing booth, pulling down quarantine barriers and arguing with hazmat-suited personnel.

Foxconn is Apple’s biggest iPhone maker by far, accounting for 70% of shipments globally, with the Zhengzhou plant, where Foxconn employs about 200,000 people, the world’s largest iPhone factory. It also has other smaller plants in southern China and in India.

The situation at the plant will further damage the narrative of China being a reliable supplier and speed the relocation of some low-cost manufacturing elsewhere, including to Vietnam and India. Earlier this month, Apple warned of lower shipments of its premium iPhone 14 models.

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS:

🎓 Leveraged Buyouts (LBOs)

In a leveraged buyout, LBO, buyers (investors and their bankers) form a new company to take over a target company. Often the amount of debt that the bankers put up in the form of bonds issued by the new company is many many times the amount of cash that investors put in (and as such may not be investment grade and have to pay a high yield, i.e. junk bonds).

But what’s really interesting is that the bonds are issued against the combined assets of the buying and target companies, but of course, mainly the target. i.e. It’s NOT the buyer who is borrowing on their own account to buy the target! (The bonds are usually sold off by the underwriting investment bankers to third party investors.)

This is because after the buyout, the target becomes a subsidiary of the new company (or the two merge into one company) and all the target company’s debt and equity is effectively replaced by the new company’s debt and equity.

In a hostile takeover (unwilling target), an LBO can be an aggressive and effective tactic as 1) the target company’s assets are used as collateral for the bonds issued to take it over and 2) the target’s cash and cash flow is used to pay the resulting debt (and sometimes additional “management fees” to the buyer.)

Please do your own research – we create educational and entertaining content so you can start the day understanding the financial and business worlds a little better. However, this is NOT financial advice.

MoneyFitt (Spendolater Pte Ltd) is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. The information contained is not intended to be a source of advice or credit analysis with respect to the material presented. Any ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial, tax or legal professional and independently researching and verifying information. Content is intended to be used and must be used for informational purposes only.

MoneyFit Morning Archive (to 07-Nov-22)

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