Sir Roy Gardners brev

To Manchester United Shareholders and, for information only, the holders of options under the Manchester United Share Schemes. Dear Shareholder,…

To Manchester United Shareholders and, for information only, the holders of options under the Manchester United Share Schemes.

Dear Shareholder,


1. Introduction
On 12 May 2005 Red acquired 75,736,960 Manchester united Shares, representing approximately 28.7 per cent of the issued share capital of Manchester United, from Cubic, at a price of 300 pence per Manchester United Share. Prior to the purchase from Cubic, the Red Football Group owned 74,149,233 Manchester United Shares, equivalent to 28.1 per cent of the issued share capital of the Company. As a result of the purchase, the Red Football Group’s holding in Manchester United increased to 149,886,193 Manchester United Shares, representing 56.9 per cent of the issued share capital of Manchester United. Accordingly, pursuant to Rule 9 of the City Code, Red is required to make an offer for the issued share capital of Manchester United that is not already held by it or any other member of the Red Football Group at not less than the price paid for the shares held by Cubic. Red has subsequently made further share purchases and as at 23 May 2005, the date on which Red’s Offer Document was posted to Manchester United Shareholders, Red owned 76.2 per cent of the Company.

This letter sets out the background to the Offer and the reasons why the Board considers that it is now appropriate to advise Manchester United Shareholders to accept the Offer. As explained below, these include the fact that control has now passed to Red and the risks of remaining as a minority shareholder.

2. Background to and reasons for the Board’s views on the Red proposals

The financial performance of a football club is closely correlated to playing performance. Good performance ensures strong demand for tickets and drives both media and commercial revenue. This in turn provides the funding to invest in players and secure future playing success.

The Board has considered it appropriate to operate the business since its flotation in 1991 on a largely debt-free basis principally to ensure that the Company would not come under financial pressure in the event of poor playing performance. In addition, the Company’s structure has provided a distinct competitive advantage in pursuing commercial opportunities and in investing to sustain the playing success. When a football club is under financial pressure, some of the key assets which it can sell are its players (in such circumstances the selling club often realises less than the value achievable under normal market circumstances) and, at a time of poor performance, such sales are likely to make playing performance worse. Too much leverage could therefore drive a downward spiral in both team and financial performance.

Speculation surrounding the interest of Red in making an offer for Manchester United has persisted for some time. The acquisition of control of Manchester United on 12 May 2005 was preceded by a number of proposals from Red which were considered by the Board in October 2004, in February 2005 and again in April 2005.

In October 2004, the Board reviewed the initial Red proposal. The Board concluded that it could not support this proposal as underpinned by the financial structure and business plan then put forward by Red. Accordingly, the Board terminated discussions at that time and made an announcement on 25 October 2004 confirming this. The Board’s announcements regarding the Red proposals since 4 October 2004 are set out in Part II of this letter.

In early February 2005, the Board was presented with a further proposal by Red at 300 pence per share in which Red’s capital structure had been revised. The Board concluded that, while the price was fair, it retained concerns in respect of the capital structure and the business plan associated with that proposal. However, the Board agreed to allow limited due diligence to proceed as it understood that the majority of shareholders would want the development of that proposal at the indicated price.

On 8 April 2005, the Board received a further revised proposal from Red which was subject to a recommendation condition. The Board and its advisers subsequently sought to understand this proposal fully through discussions with Red. This proposal, which included a higher proportion of equity than the previous proposals, has formed the basis of the Offer.

As set out in its announcement on 28 April 2005, the Board unanimously concluded that, in its view, the assumptions in the Red business plan were aggressive. Furthermore, the Board believed that, notwithstanding the changes that had been made to the capital structure relating to this proposal, the capital structure, taken as a whole, contained more leverage than the Board considered prudent and that, as a consequence, there was likely to be significant financial strain on the business. The Board was therefore unable to support this revised proposal as being in the best interests of the Company or provide a recommendation to Manchester United Shareholders to accept an offer made on the basis of this proposal. The Board believed, however, that the price of 300 pence per Manchester United Share was fair.

The Board was aware that an acquisition of Manchester United by Red would be likely to be opposed by some Manchester United Shareholders and fans concerned about the future running of the football club. During its discussions with Red, the Board sought a range of legally binding protections for the football club, its fans and any minority shareholders, including in relation to future levels of net debt, new player investment and transfers, team selection, Old Trafford, ticket prices and certain minority protections. As at the date of this document, no such protections or assurances have been forthcoming.

Since then, the events described in the Introduction paragraph to this letter have occurred.

The Offer values the entire issued share capital of the Company at approximately £790.3 million. Details of the Offer financing arrangements are set out on pages 68 and 69 of Red’s Offer Document. In summary, the Glazer family is providing equity contributions of around £272 million. Certain lenders are providing term loan facilities to Red of up to £265 million, all of which are due to be repaid within 10 years and will be secured on the Company’s assets. Red Joint Venture is providing £275 million by the issue, to certain investors, of non-cash pay preferred securities with a final maturity date of 30 April 2020. However, if these preferred securities are not repaid within 63 months from 12 May 2005, the holders of the preferred securities have rights of enforcement against the ordinary shared of Red Joint Venture. Although the non-cash pay preferred securities have no direct recourse to the Company’s assets, in the Board’s view, the repayment or refinancing of these securities may put additional indirect pressure on the business.

3. Information on Red
Red is a UK private limited company incorporated for the specific purpose of making the Offer and is a wholly-owned subsidiary of Red Joint Venture which is indirectly wholly-owned by Red Football Partnership. The general partner of Red Football Partnership is Malcolm I. Glazer G.P., Inc. and the limited partner of Red Football Partnership is Malcolm Glazer Revocable Trust. The sole shareholder of Malcolm I. Glazer G.P., Inc. is Malcolm Glazer Revocable Trust (of which the principal beneficiary is Malcolm Glazer). There is no publicly available financial information on any of the entities referred to in this paragraph.
Red’s Offer Document states that Red has not traded, or entered into any obligations, other than in connection with the Offer and the financing of the Offer.

4. The Offer
The Offer is being made on the following basis:
For each Manchester United Share, 300 pence in cash

The Offer values the total issued share capital of Manchester United at approximately £790.3 million.

The Offer is unconditional since Red already owns Manchester United Shares representing 76.2 per cent of Manchester United’s issued share capital.

5. Risks of remaining as a minority shareholder

Manchester United Shareholders have a choice with regard to what they want to do in respect of their Manchester United Shares. Manchester United Shareholders can choose to sell some or all of their Manchester United Shares to Red for 300 pence per Manchester United Share or they can retain some or all of their shareholding in Manchester United.

Given the Board’s concerns, as set out above, regarding the capital structure of the Company pursuant to the Offer, those Manchester United Shareholders who retain some or all of their shares will be exposed to financial risks owing to the increase in leverage of the Company.

Manchester United Shareholders should also note that Red’s Offer Document states that it intends to delist the Company’s shares which is likely to reduce significantly the liquidity and marketability of any Manchester United Shares which are retained. In addition, Manchester United Shareholders should note that Red’s Offer Document states that it is unlikely that those Manchester United Shareholders who do not accept the Offer will receive the same level of future dividend payments (if any) in respect of their Manchester United Shares as have been previously declared and paid.

Furthermore, Red’s Offer Document does not contain any of the range of protections sought by the Board in its discussions with Red for those Manchester United Shareholders that choose to remain minority shareholders in the Company. Also, Red’s Offer Document states that it intends to propose a special resolution to re-register the Company as a private company. Manchester United Shareholders should note that, as minority shareholders of a private and unlisted company, they may not be afforded the same level of protection as was afforded to them whilst the Company was a listed public company.

Given these risks, the price offered by Red today may not, therefore, be realisable in the future.

6. Management and employees

Red has stated that the existing employment rights, including pension rights, of all employees of Manchester United will be safeguarded. Red’s Offer Document states Red’s intention to invite the current senior management team to remain with the Company to assist in ensuring future success on an off the pitch. The executive directors intend to hold detailed discussions with Red regarding the management and ongoing operation of the football club and will in any event seek to ensure that transitional arrangements are managed in the best interests of the football club. It is expected that the non-executive directors will resign from the Board shortly.

Red has confirmed to Manchester United that Red believes that the remuneration committee of the Board should recommend the release of the full number of Manchester United Shares under the Manchester United Long Term Incentive Plan to the participants in that plan.

7. Manchester United Shares Schemes

The Offer extends to any Manchester United Shares unconditionally allotted or issued and fully paid (or credited as fully paid) while the Offer remains open for acceptance (or such earlier date as Red may, subject to the City Code, decide), including (without limitation) any Manchester United Shares issued pursuant to the exercise of options granted under the Manchester United Share Schemes.

Red has stated that it will, in due course, make appropriate proposals to the holders of options under the Manchester United Share Schemes. It is likely that members of Manchester United Share Schemes may need to complete acceptance forms in respect of such proposals by 3.00pm on 13 June 2005.

8. Taxation

Your attention is drawn to the paragraphs on pages 7 and 8 of Red’s Offer Document headed “United Kingdom taxation”. If you are in any doubt as to your own tax position or you are subject to taxation in any other jurisdiction outside the United Kingdom, you should consult an appropriately qualified independent professional adviser immediately.

9. Action to be taken if you wish to accept the Offer

The procedure for acceptance of the Offer is set out in Red’s Offer Document and in the Form of Acceptance enclosed with the Offer Document. To accept the Offer you should ensure that you return your completed Form of Acceptance (using the reply-paid envelope enclosed with the Offer Document) by post or (during normal business hours only) by hand to Capita Registrars, Corporate Actions, PO Box 166, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TH so as to be received as soon as possible and, in any event, no later than 3.00 pm on 13 June 2005. If you are in any doubt as to the procedure for acceptance, please contact Capita Registrars by telephone on 0870 162 3121 (or, if calling from outside the UK, on +44 208 639 2157).

Subject to the Offer not lapsing, settlement of the consideration to which any Manchester United Shareholder is entitled under the Offer is expected to be effected within 14 days of the later of (i) 13 June 2005 and (ii) provided that the Offer remains open for acceptance, the date on which acceptances are received complete in all respects.

Manchester United Shareholders should read all of Red’s Offer Document, including the terms and conditions of the Offer and the relevant Form of Acceptance, prior to making any decision in respect of the Offer.

If you are in any doubt about the Offer or the action you should take, you are recommended immediately to seek your own personal advice from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser duly authorised under the Financial Services and Markets Act 2000, if you are in the United Kingdom, or from another appropriately qualified professional adviser if outside the United Kingdom.

10. Advice to Shareholders in respect of the Offer

The Board has received financial advice on the Offer and the associated capital structure from Tricorn Partners and JPMorgan Cazenove. JPMorgan Cazenove is a connected party to JP Morgan who have provided debt finance to Red, and Tricorn Partners is therefore acting for Manchester United for the purposes of providing independent advice to the Board under Rule 3 of the City Code. In providing advice to the Board, Tricorn Partners and JPMorgan Cazenove have taken into account the commercial assessments of the Manchester United Directors.

The Board, which has been so advised by Tricorn Partners and JPMorgan Cazenove, considers that the price of the Offer is fair.

Control of Manchester United has now passed to Red. The Board believes that there are risks of remaining as a minority shareholder in Manchester United as referred to in Section 5 above and that the price offered by Red today may not be realisable in the future. In light of these risks, the Board has now unanimously concluded that, unless Manchester United Shareholders have strong non financial reasons for wishing to stay invested in the Company, they should accept the Offer, as the Board intended to do in respect of its own beneficial holdings amounting, in aggregate, to 1,905,515 Manchester United Shares (representing 0.72 per cent of Manchester United’s share capital).

The Offer is open for acceptance until 3.00pm on 13 June 2005. Red’s Offer Document states that the Offer might not be extended beyond such time, and therefore Manchester United Shareholders should be aware that, after 3.00pm on 13 June 2005, they might not be able to accept the Offer in respect of their Manchester United Shares.

Yours sincerely

Sir Roy Gardner
Non-Executive Chairman

Kilde: Manchester Evening News

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