With the new football season in full swing, calm has finally been restored at Old Trafford. During the last season, however, Manchester United Football Club was embroiled in one of the most controversial hostile takeovers ever witnessed in the City.
Right at the centre of the 15-month battle to capture Man Utd were Malcolm Glazer’s legal advisers Allen & Overy (A&O) corporate partners Andrew Ballheimer and Richard Hough.
Glazer finally got his hands on Man Utd on 13 May, after Irish horseracing millionaires JP McManus and John Magnier sold their 28.7 per cent stake in the club to the owner of the Tampa Bay Buccanneers. The move forced Glazer to make a mandatory Rule 9 offer for club.
Following a recommendation from an investment bank, Glazer first approached Ballheimer for European investment advice when the A&O partner was based in New York in June 2002. From that point on, Ballheimer became Glazer’s first choice for European legal advice.
However, A&O’s decision to accept the instruction from Glazer on the proposed Man Utd acquisition soon turned into a nightmare. Last October, when the takeover battle stepped up a few gears, the magic circle firm was forced to seal its London office entrances after being deluged with abusive phone calls and emails from disgruntled supporters. Indeed, concerns over some form of attack from angry fans also resulted in Ballheimer and Hough requesting not to be individually named as Glazer’s lawyers.
“We were slightly surprised by the level of controversy that made its way into the press and the workplace. The controversy was borne more from the target side than from the nature of our client as a US investor – there are plenty of those around,” says Hough.
Ballheimer adds: “At the end of the day, we had a bona fide client who was keen to invest in a plc and we were happy to help him, as we would have been with any client in the absence of something out there that would change our view. The controversy was incidental.”
After Glazer first turned to Ballheimer, he and his family started to build up a stake in Man Utd and, by 24 February, they already owned 16.69 per cent of the club. “The Glazers built up a relatively small stake over a two-year period and, so far as we’re aware, weren’t interested per se in bidding for the whole club. But over time they decided that it was a good investment and were excited by the proposition and started discussing ideas,” explains Ballheimer.
“The Glazers were going about their business and increasing their stake in a public company. Clearly there was a constituency or constituents in the company that didn’t like that and they just happened to be particularly vocal and visible,” adds Ballheimer.
A&O’s first significant involvement beyond advising Glazer on market purchases of Man Utd shares came on 16 February 2004, when Glazer made his first formal announcement. In that announcement, Glazer, who then owned 16.31 per cent of the club, said he may make an offer for the club or reduce his stake in it.
“There was an article in the Financial Times that Commerzbank had been hired by our client to advise them on possible bid structures, but that was wholly untrue,” says Ballheimer. “However, the panel insisted on an announcement being put out, so a bland announcement was issued. But at that stage they didn’t have any advanced plans in terms of a bid.”
Nothing significant was then heard from the Glazer camp until the end of March 2004, when he announced that he had no current intention of making an offer for Man Utd. Then, on 4 October 2004, Man Utd confirmed that the club had received a preliminary approach from Glazer regarding a possible offer.
“In October 2004 there was a discussion about a potential offer, but it was only broad brush because the finance wasn’t available,” explains Hough.
But on 25 October, Man Utd put out a further announcement, saying the board would not support a potential offer from Glazer as it was too highly leveraged and therefore not in the best interests of the company.
Man Utd’s controversial annual general meeting (AGM) on 12 November 2004 was a watershed in the takeover saga. Ballheimer admits that the AGM was at times very heated, but insists that it went very smoothly.
“The AGM was clearly an opportunity for shareholders to voice their concerns, and they did that, as is their right. The AGM was very professionally organised, albeit heated,” he says, adding: “I wasn’t concerned about our personal safety – we were looked after very well. We weren’t going to hide but we weren’t going to advertise ourselves either.”
At that AGM, a shareholder resolution to reappoint board members Maurice Watkins, Philip Yea and Andy Anson was blocked by Glazer. The move resulted in Glazer being dumped by his financial adviser and PR firms.
Both Ballheimer and Hough defend the Glazers’ actions at the AGM. “They hadn’t done anything wrong. They exercised their right as a significant shareholder and we were there to attend the AGM on their behalf and to make sure their votes counted, as you’d expect,” argues Hough.
Ballheimer adds: “At that stage our clients owned a third of the club and were perfectly entitled to be able to exercise their votes. It was perfectly appropriate for us to be there and help our clients.”
The pair also defend their decision not to ditch Glazer as a client and argue that there was no basis to do this. “Even if we wanted to stop acting, the Law Society rules would not allow us to do so. In any event, we were happy to continue acting for the Glazers,” says Hough.
The next significant development was a meeting in Florida between Glazer, Man Utd chairman Sir Roy Gardner and chief executive officer David Gill. At the very end of that meeting, Gardner asked if the Glazers were still interested and Glazer said he was not sure, but handed the chairman a very preliminary outline of what a potential offer might look like.
“It was all very indicative, and all of a sudden that outline was leaked and there was a third offer period. But it was a very, very preliminary indicative offer because, among other things, the finance hadn’t been put in place,” says Ballheimer.
Despite Man Utd being put into several offer periods, the club did not issue a put up or shut up notice until 28 April 2005.
“One of the miracles of this transaction is how our client avoided being forced into a put up or shut up period until the final stages. Our client only made a formal indicative offer in April of this year. All the previous offer periods arose other than as a result of our client making an offer,” says Ballheimer.
Fortunately for Glazer, the Takeover Panel applied the City Code on Takeovers and Mergers flexibly. It agreed to end the first offer period without any adverse consequences for the Glazer camp when it became apparent that an offer period was in nobody’s interests. Additionally, the put up or shut up period lasted for three weeks, but could have been much shorter.
“The three-week put up or shut up period, which could’ve been much shorter, recognised how advanced our bid preparation was. Ultimately, this enabled us to buy JP McManus’s and John Magnier’s stake and make a 300p offer to Man Utd shareholders,” says Hough.
Throughout the 15-month battle, Man Utd’s board consistently refused to recommend Glazer’s bid to the club’s shareholders, despite admitting that the offer of 300p per share was fair. Indeed, on 25 October 2004, the club, which was advised by Freshfields Bruckhaus Deringer corporate partner Mark Rawlinson (see The Lawyer, 31 May 2005), made a pre-emptive announcement, in which the board said it 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. The board argued that acting in the best interests of the company had a wider meaning than just looking at the interests of the present and future shareholders, and that it includes the best interests of other stakeholders, such as employees and customers.
But Ballheimer insists that the issue of the best interests of the company was a red herring, because if the directors truly believed that the offer was not in the best interests of Man Utd they would not have allowed Glazer to carry out due diligence.
“It’s illogical to say that we don’t believe the offer is in the best interests of the company, we will not recommend it, but we’ll allow you access to due diligence. That’s hair splitting,” says Ballheimer.
Despite the obstacles Glazer had to overcome, he stuck to his guns and got his way in the end. “What’s easy to forget its that this was actually a very complicated deal to put together. The financing arrangements were complex and the tactical considerations numerous,” says Hough.
He concludes: “Professionally speaking, the most satisfying element was completing a highly leveraged, non-recommended offer with only a 50 per cent acceptance condition. That’s incredibly rare and speaks volumes of the wish of all involved on the Glazer side to get the deal done.”