Manchester United’s complex deal has traders tearing up playbook
MANCHESTER United’s long-running pursuit of a deal is finally set to end in a US$1.3 billion sale of a piece of itself. But traders hoping to net a big payday from it still face a thicket of complexities and volatility.
UK business mogul Jim Ratcliffe struck an agreement in December to acquire, through his chemical conglomerate Ineos Group, a 25 per cent stake in the Premier League football club. His move paved the way for so-called event-driven traders to place their own bets on the deal and how it might change the fortunes of the storied club. But with the deadline for the tender in sight this week, tailoring the wager has involved some tricky calculus.
As part of the transaction, Ratcliffe plans to buy up to 25 per cent of the Class A shares at US$33 apiece via a tender offer. That’s well above the US$20 level where they were trading at the time of the deal announcement and a significant premium to the US$13 area where they changed hands in late 2022, before deal speculation began. But the deal is only a partial tender offer, which means participating investors will have only a chunk of their shares taken out at US$33.
The rest of the shares will eventually settle at a level that represents investors’ perceptions of the club’s post-deal valuation – but not without some likely choppiness occurring first. All of this makes profiting from the trade a challenge, especially for sophisticated players who don’t plan on being long-term holders.
“There is additional complexity due to the uncertainty of the value in prorated shares,”said Julian Klymochko, chief executive officer of Accelerate Financial Technologies, which has an arbitrage-focused fund. “You need to divest those shares and figure out what’s the marketplace where you can exit. There’s typically a lot of selling pressure around the same time.”
Gyrations in the shares this week underscore the hazards for the event-driven trading community.
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Ratcliffe had originally set the deadline for his tender offer at the end of Tuesday (Feb 13). This had prompted many traders to lock in their positions at least two days prior to give their trades adequate time to settle and be eligible to tender. So by Monday, with no buying incentive, the stock started sinking, tumbling more than 7 per cent and falling below US$20.
Then late Monday, Ratcliffe extended the deadline for his tender offer until Friday, giving traders more time to lock in new bets. That in turn drove up the Class A shares more on Tuesday to above US$21, where they remained on Wednesday.
By Thursday, though, with traders reluctant to take any new positions for fear of not settling in time to be eligible by the new Friday deadline, another volatile stretch for the stock set in. The shares slumped as much as 14 per cent in early trading. It was hovering just under US$19 at 9.45 am New York time.
To set up a profitable trade, it’s crucial to accurately predict the participation rate for the tender offer, which determines if a larger or smaller slice will be accepted for each individual who opts in. It’s also important to estimate the stock’s so-called back-end price – the post-deal level, according to several market players including Cabot Henderson at Jones Trading, a brokerage firm. The market consensus for a back-end price is at around the mid-teens, he added.
As of Tuesday, about 31 million, or approximately 58.8 per cent of the outstanding Class A shares had been validly tendered, according to a press release. That level is lower than some traders expected – a sign that Manchester United’s shareholder base includes a fair amount of buy-and-hold investors who may not tender, according to Klymochko. That likely led traders to adjust their assumptions and tweak their positions.
The final proration figure should be teased out shortly after Friday’s deadline, if all things go as planned. In the meantime, the stock is likely to endure more jolts before settling at its new valuation.
From Thursday on, “the stock will trade ex the ability to tender and we will finally see what the back-end price is going to be,” Henderson said. Either way, he added, “this seemingly never-ending saga that kicked off late 2022 is finally coming to an end.” BLOOMBERG
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