The US stock markets have become a place where a fool and his money are becoming easily parted.
Manchester United Football Club (NYSE: MANU ) is one of the most successful football teams on the planet.
But fame and recognition are no guarantees of success on the stock market. In fact, the club’s IPO last week shows us that they can be quite the opposite.
Manchester United’s backers were hoping to place its shares at $16 to $20. Instead, the stock hit the market at $14 and barely budged during that first trading day (according to the Financial Times it had to be supported by it’s greedy backers.)
Does that sound familiar? It should. The most prominent IPO of this year followed a similar trajectory.
Facebook (Nasdaq: FB ) tried to leverage a massively popular website and immense brand recognition into a blockbuster stock market debut.
That blockbuster ended up being more of a wet firecracker. On day one of trading, the stock barely treaded water above its issue price of $38 (again thanks to the generous buying support of the company’s underwriters).
Since then, the stock has plummeted- and it’s not likely to rise anytime soon.
On the back of a recent negative earnings report the shares yesterday languished just above $20. A fall of a massive 48%- and the employee lock-in still hasn’t opened yet.
As for MUFC- the current owners Glazer’s 2005 highly leveraged acquisition left it saddled with hundreds of millions in debt. That isn’t an amount that melts away easily, and in the subsequent years, Manchester United’s debt level has grown alarmingly.
The company managed to repay some of that, but according to its unaudited figures as of this past March, long-term debt was still high at £417 million pounds. Cash, meanwhile, amounted to less than £26 million.
How the NYSE manage to define this business- which was founded in 1876 as a new growth story and allow it’s owners to maintain 90% voting rights is a disgrace.
So when the next “big thing can’t fail” IPO is touted. We suggest that you sit on your hands and wallets.
As the saying goes- how to you make a small fortune from football clubs? You start with a large fortune. So the saying goes with Wall Street’s insider stock brokers. Caveat emptor.