Theatre of schemes

He lost, but he’s still smiling. Freshfields star M&A partner Mark Rawlinson tells The Lawyer the story behind the defence of Manchester United. By Husnara Begum

Freshfields Bruckhaus Deringer

corporate partner Mark Rawlinson is surprisingly upbeat. For on 13 May, Manchester United Football Club, advised by Rawlinson, lost out on one of the most hotly contested hostile takeovers ever witnessed in the City.

The writing was on the wall for Manchester United on 12 May. That was the day Irish horseracing millionaires JP McManus and John Magnier sold their 28.7 per cent stake in the club to Malcolm Glazer, forcing the US sports tycoon to make a mandatory Rule 9 offer for the Premiership club.

In many ways the result was inevitable. There was a willing buyer who already owned just under 30 per cent of the club’s shares and willing sellers, who together held almost another 30 per cent of the club.

Nevertheless, Manchester United did not give in to the owner of the Tampa Bay Buccaneers without a fight. Indeed, the board consistently refused to recommend Glazer’s offer to the club’s shareholders, despite admitting that the offer of 300p per share was a “fair” price.

“The result was almost 99 per cent certain, so for the defence to last the best part of 15 months is a hell of an achievement. Manchester United had very few cards to play and played them very well,” argues Rawlinson.

Rawlinson is an avid Manchester United fan and, unlike many of the club’s other supporters, is also a genuine Mancunian. The instruction was therefore a dream ticket for Rawlinson, who won the work through a contact at the club’s financial adviser Cazenove. Michael Gradon, director of commercial and legal affairs at key Freshfields client P&O, also lent a hand and introduced Rawlinson to the senior partner of James Chapman & Co and former Manchester United director Maurice Watkins.

Freshfields also advised Manchester United on the recommended £900m bid for the club by BSkyB in 1998, which failed on competition grounds. Since then, though, the personnel at both Freshfields and the football club has changed. Lead corporate partner Tim Emmerson quit the magic circle firm to join the London office of Milbank Tweed Hadley & McCloy two years ago, while Manchester United got a new chief executive officer (CEO) in the shape of former finance director David Gill, plus a new chairman in Sir Roy Gardner.

When McManus and Magnier increased their stake in Manchester United to 28.89 per cent on 11 February 2004, it sparked speculation of a fresh takeover. Rawlinson used this as an ideal opportunity to muscle his way into the Manchester United boardroom with a prepared memorandum on bid defence tactics for the club’s directors. The tactic paid off, as Rawlinson was subsequently invited to a board meeting and, not long afterwards, he landed the mandate to defend Manchester United against Glazer.

Glazer, who was advised by Allen & Overy (A&O), made his first announcement on 16 February 2004 following speculation of a possible takeover by him of the club, which came about due to his increased stake. In that announcement, he admitted he may make an offer for Manchester United.

Nothing significant was then heard from Glazer’s camp until the end of March 2004, when he announced that he had no current intention of making an offer for Manchester United. Then, on 4 October 2004, Manchester United confirmed that the club had received a preliminary approach from Glazer regarding a potential offer.

The next significant development was a further announcement by Manchester United on 25 October saying the board would not support a potential offer from Glazer because it was too highly leveraged and, therefore, not in the best interests of the company. The club also highlighted, for the first time, the correlation between a football club’s financial returns and its performance on the pitch.

“Manchester United made a pre-emptive announcement because Glazer kept on increasing his stake,” explains Rawlinson. “Coming out with a statement ahead of time and saying that [the board] was going to take into account other factors than the price was novel.

“It’s not good to have a football club that’s heavily leveraged. Manchester United has always operated with hardly any debt and that’s given it a lot of flexibility. The problem with debt is that it has to be repaid at some stage – that puts a lot of financial strain on a business.”

Tactically, the Manchester United board’s decision not to recommend Glazer’s offer, despite admitting it was fair, looked like a masterstroke. “I think [Manchester United’s board] played it very cleverly. They stuck their heads above the parapet big time and at various times said they didn’t approve the offer,” argues Rawlinson.

Not recommending the offer at an early stage put pressure on JP Morgan on whether it should finance the deal, and on the Irish shareholders on whether they were going to be kingmakers.

But he admits that he also put his own neck on the line by advising his client to take this stance. “It’s fair to say that I was taking an extreme stance and, if A&O thought we’d got it wrong, [Manchester United shareholders] could have sued Manchester United for breach of fiduciary duty,” explains Rawlinson.

But the board stuck to its guns, arguing that acting in the best interests of the company has a wider meaning than just looking after the interests of the present and future shareholders, and that it includes the interests of other stakeholders such as employees and customers.

The board’s decision not to recommend Glazer’s offer was very cunning from a defence point of view. It is understood that, until the very late stages of the takeover battle, JP Morgan was not prepared to finance a hostile bid. Also, from Glazer’s point of view, it may have been easier to persuade McManus and Magnier to sell their stake in the presence of a recommendation.

Manchester United held off issuing Glazer with a ‘put up or shut up’ notice until 28 April 2005. When interviewed by The Lawyer last Monday (23 May), Gill argued that issuing Glazer with an ultimatum sooner would have been a short-term solution, as he had the option to start stalking Manchester United again after six months had elapsed.

“We wanted a resolution. If we issued a ‘put up or shut up’, and [Glazer] shut up, he’d have been out of the market for just six months,” says Gill.

Rawlinson supports Gill’s position and adds: “There were times when it looked as though Glazer would go away – for example, when JP Morgan resigned as financial adviser.”

Despite the outcome, Rawlinson says that, with the benefit of hindsight, he believes he gave his client the best advice.

Indeed, Gill was full of praise for Rawlinson. “I think Mark’s very capable of putting complex legal argument into layman’s English and was a good, level-headed sounding board for the directors,” he says. “It’s going to be a rarity where the interests of the company and the shareholders diverge to the extent they did here, but I think there were very legitimate reasons for the board to take the decisions they took,” concludes Rawlinson.

 Timeline – how Glazer bagged the world’s richest football club

11 February:
JP McManus and John Magnier increase their stake in Manchester United to 28.89 per cent.

12 February 2004:
Malcolm Glazer increases his stake in Manchester United to 16.31 per cent.

16 February 2004:
Glazer notes the press speculation resulting from his increased shareholding and admits he may make a formal offer for the club.

25 February 2004:
Glazer increases his stake in Manchester United to 16.69 per cent.

26 April 2004:
Glazer increases his stake to 18.25 per cent.

24 June 2004:
Glazer increases his stake to 19.17 per cent.

4 October 2004:
Manchester United confirms that it has received a preliminary approach from Glazer regarding a possible offer for the club.

16 October 2004:
Manchester United confirms it has held preliminary discussions with Glazer about a possible offer, but that there was no definitive proposal for the board to consider. Glazer increases his Manchester United stake to 25.32 per cent.

18 October 2004:
Glazer increases his stake to 27.63 per cent.

19 October 2004:
Glazer increases his stake to 28.11 per cent.

25 October 2004:
Manchester United makes a pre-emptive announcement, saying the board would not support a potential offer from Glazer because of the capital structure, arguing that it was overleveraged. The board also highlighted, for the first time, the correlation between a football club’s financial returns and its performance on the pitch.

12 November 2004:
A shareholder resolution to reappoint Maurice Watkins, Philip Yea and Andy Anson as directors is blocked by Glazer at Manchester United’s annual general meeting. The move results in Glazer’s financial adviser and PR firm Brunswick dumping its client. Meanwhile, Manchester United’s board rejects Glazer’s request to carry out due diligence.

20 December 2004:
Manchester United confirms Glazer has hinted at potential revisions to his previous proposal.

7 February 2005:
Manchester United confirms it has received a detailed proposal, subject to a number of preconditions from Glazer.

11 February 2005:
Manchester United confirms Glazer is willing to make an all-cash offer of 300p per share with a 75 per cent acceptance level. Glazer’s revised proposal includes permission to carry out due diligence and a board recommendation. However, the board refuses to recommend the proposal, arguing that Glazer’s proposals are aggressive, but it admits that the offer of 300p per share is fair. Manchester United allows Glazer to carry out limited due diligence.

28 April 2005:
Manchester United issues Glazer with a ‘put up or shut up’ notice.

12 May 2005:
McManus and Magnier sell their 28.7 per cent stake in Manchester United to Glazer, forcing the US sports tycoon to make an unconditional mandatory Rule 9 offer.

23 May 2005:
The offer document is sent out to Manchester United shareholders.