The speculation grows louder that Qatari Sheikh Jassim bin Hamad al-Thani is getting closer to buying Manchester United (MANU) for an estimated $6.31 billion.
The Glazer family has controlled the iconic football/soccer club that plays in England’s Premier League since they made a controversial leveraged buyout in 2005. The Glazers are expected to announce who is their preferred bidder this week.
It is down to Sheikh Jassim and British billionaire Jim Ratcliffe. It’s also possible that the Glazers could decide to carry on controlling the publicly-traded sports club and do nothing.
In recent days, as speculation has ramped up, MANU stock has experienced some unusual options activity. This late in the game, investors keep sniffing around for a way to make money off a stock that’s doubled since the Glazers officially announced last November that they were exploring strategic alternatives, including a full sale of Manchester United.
While the club might ultimately get sold, the closing won’t happen for many months, possibly not until 2024. There’s still plenty of time to play MANU stock using options as your friend.
Here are my thoughts on the subject.
How Long Is Too Long?
As I write this, we’re about halfway through Thursday trading. According to Barchart.com data, there are three options -- one put and two calls -- exhibiting unusual options activity on the day.
Let’s examine each of them.
July 21 $22 put: This put has 36 days to expiration. The current share price is $25.56. Shares are up nearly 10% on the news of an impending deal, or at least, Reuters is reporting, Sheikh Jassim gaining exclusivity to negotiate a final agreement with Manchester United.
So, the share price is $3.56 above the strike price. If you sell the puts, your premium income is $1.95, a 7.6% yield. On an annualized basis, that’s a 77% yield. From an income perspective, you can’t get much better than that.
If the rumors are true, it’s possible the share price won’t fall below $22 by the end of the 36 days, and as such, you won’t have to buy the shares. That’s a double-edged sword.
On the one hand, if a deal can’t be reached under exclusivity, the shares will almost certainly fall into the low $20s or even the mid-to-high teens once the stalemate is announced.
On the other, if the deal is done, it could be for more than $25.56 a share. If you could get your hands on MANU stock at $22, your profit would be significantly higher than $195 in premium income.
July 21 $30 call: This call expires in 36 days, like the put. It has a $1.35 ask price, which means it could double in value over the next six weeks if the share price increases by $4.28. That puts the share price at $29.84, $1.51 below what you would pay for the shares if you exercised your right to buy.
So, like the put, you’re more likely to make money from not buying the shares but by looking to sell the call to some other buyer. That becomes less likely as time passes, especially if the deal seems ready to implode. A lot can happen in 36 days.
June 23 $30 call: This call expires in eight days. Its ask price is $0.80. It could double in value over the next eight days if the share price increased by $3.22 to $28.78. From this perspective, the July 21 $30 call is the better choice of the two calls. Time is always your friend.
How Much Will the Final Offer Be?
Let’s assume that the Glazers accept a deal for $6.3 billion.
That includes debt, net of cash. As of December 31, 2022, it had $45.8 million in cash and marketable securities on its balance sheet and $871.3 million in long-term debt for net debt of $825.5 million.
So, based on a share price of $25.56, a buyer would pay $4.21 billion for the equity (based on 164.75 million shares outstanding) plus $825.5 million for an enterprise value of $5.04 billion.
So, if the $6.3 billion figure were accurate, the buyer would have to pay an additional $7.67 a share to complete the deal. That’s $33.23 a share, considerably higher than any of the strike prices of the three options from above.
But, and there’s always a but.
This doesn’t consider the funds that would be negotiated for player signings, infrastructure, etc. So, it’s unlikely that the offer will be for $33 a share. It might not even make it to $30.
I’ve read that Ratcliffe’s offer is for $6.2 billion to acquire 69% of the shares, with an opportunity to buy out the family in three years.
Who knows what’s true or not?
What I do know is that if you are interested in income, the July 21 $22 put looks like a really interesting short-term play.
I guess we’ll see soon enough.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
