Manchester United: Further Upside Potential On This Arbitrage Trade (NYSE:MANU)

I wrote an article in late August discussing the ongoing takeover rumors of the Manchester United (NYSE:MANU) soccer club. A random Elon Musk tweet and unusual options trades were part of the intrigue. The stock is now up 80% after a bidding war started as predicted. In this article, I will predict the potential high for the bids.

The Glazers are set to part company with their soccer team

In late August, rumors were growing that the U.S.-based Glazer family, owners of the Tampa Bay Buccaneers, were ready to sell their ownership stake in Manchester United. The Glazers have owned United since 2005 and have had a rocky relationship with its supporters. Fans were unhappy that the leveraged takeover had saddled the club with large debts and in later years, they criticized the owners for drawing money for the club and not investing in its stadium.

Then in August, Elon Musk tweeted a cryptic claim that he was buying the club. “To be clear, I support the left half of the Republican Party and the right half of the Democratic Party! Also, I’m buying Manchester United ur welcome,” Musk told his followers.

At the same time, some large options trades had been placed on the company’s stock with the largest strike prices being clustered around September and March.

An interesting rumor emerged in November 2022 that Apple (AAPL) was considering a bid for the team, however, the tech giant later refuted that statement.

A bidding war gets underway for Manchester United

The Glazers had announced in late 2022 that they were beginning a “process to explore strategic alternatives for the club”. They added: “As part of this process, the board will consider all strategic alternatives, including new investment into the club, a sale, or other transactions involving the company.”

That statement was followed by links to several interested parties, including the UK’s richest man, Sir Jim Ratcliffe. Since then there are said to be five rival bids coming in for the club.

U.S. merchant bankers Raine will oversee the sale of the club with a February 17 deadline for offers to be submitted. That is interesting considering the strike prices for March. Boyhood Manchester United fan and billionaire Ratcliffe was joined by a Qatari bid. Among the other interested parties are multiple Saudi bids.

Manchester United’s biggest rivals, Manchester City, were bought in 2008 by an investment fund tied to the United Arab Emirates royal family. More recently, league rivals Newcastle United and Chelsea were bought by the Saudi Arabian sovereign wealth fund and U.S. investor Todd Boehly, respectively.

Where is the potential high in this bidding war?

In my first article in August, I wrote:

The $5 billion deal for Chelsea is interesting because Manchester United trades at a market cap of only $2.25 billion on the NYSE. That means that the club could fetch a price tag above the $5 billion mark and a +100% return for investors.

The club now has a valuation of $3.84bn and an enterprise value of $4.57bn, according to Seeking Alpha data. This is due to the company’s debt load of $786 million.

The latest reports have included Chinese parties alongside the Qatari royals and they are said to be bidding £5 billion ($6bn) for the club. With the current enterprise value of $4.57bn that could provide some additional upside in the stock.

An enterprise value of $6bn comes in at a stock price of around $30.91, which would suggest a further upside in the stock of around $7.50. Investors who bought in August could consider taking profits around the current level and playing the arbitrage gap. There is often some hesitancy in takeovers but it is hard to see this bidding war lead to nothing as other clubs are being bough and Manchester United is one of the world’s biggest, and most lucrative, soccer clubs.

Conclusion

A bidding war has now started for the Manchester United soccer team and rival bids have the potential to push the limit of the $6bn price tag. A recent $5bn bid for the rival Chelsea team made it obvious that Man United’s $2.5bn stock valuation was seriously undervalued. Investors have been rewarded with 80% gains and there may be a little more upside to squeeze from MANU stock.