☀️☕️ Trophyless and Ronaldo-less Manchester United on the block

24 November 2022

Happy Thursday, and Happy Thanksgiving to our American friends!

📊 IN THE MARKETS

• FOMC Minutes

📝 FOCUS

• Trophyless and Ronaldo-less Manchester United on the block

• Covid lockdown-related violence at iPhone 14 plant

📊 IN THE MARKETS

Minutes of the November 2nd meeting of the Federal Open Markets Committee (the bit of the US central bank that sets interest rates eight times a year) were released today and (1) showed a “substantial majority” of voting members supported slowing down the pace of interest rate rises soon and (2) that some warned that monetary policy would need to be tightened more than expected next year. These were almost exactly what Federal Reserve Chair Jay Powell said as he summed it all up on the day, right after that fourth consecutive 75 basis point (0.75%) rate hike, so you would be forgiven for expecting markets to have priced it in, by now. And you'd be wrong! US markets rose overnight, focusing on the first part and largely ignored the second.

Back on November 2nd, an FTX and a bit ago, the S&P500 rose a bit when JPow said the first part and then reacted quickly to the second by dropping 3.5%. The index closed on Wednesday 7% above where it was at the end of that day.

📝 FOCUS

Trophyless and Ronaldo-less Manchester United on the block

The American Glazer family, who own Manchester United (MANU), are considering selling the club. They bought it for £790m in 2005 and sold 10% of the company when it was listed on the NYSE in 2012. The Glazers bought the club in a classic leveraged buyout 🎓(LBO) that has been criticised by fans sore at a five-year trophyless run for loading debt onto the club (£275 million at the time, but now almost double that) while the owners pulled out cash in dividends and chose not to renovate or redevelop the storied Old Trafford stadium. But that's the nature of LBOs!

The family is reportedly looking for a valuation of between £6 billion (US$7.2 billion) and £8 billion, making it the most expensive sporting institution ever, and far higher than the £2.5 billion paid in May (plus a £1.8 billion investment commitment) for Chelsea by a consortium fronted by Los Angeles Dodgers part-owner Todd Boehly. It would come to a very high 50 times this year’s expected earnings before interest, tax, depreciation and amortization (which, you may be horrified to hear, market types call "eebitdah".) Fans may be happy to add losing the Glazers to the trophies they've been losing, but any new buyer may need to be even more aggressive in wringing out returns from the company and may well take on even more debt to do so. (Unless funded by abundant natural gas reserves, of course.)

It's obviously a huge gain for the family over the purchase price 17 years ago, even excluding the fees and dividends since then. The shares rose 26% on the news and even after the gain, the club had a market value of US$3.1 billion, perhaps reflecting that the "strategic alternatives" they are considering may not directly benefit all shareholders. (The Fenway Sports Group, which is looking to sell unlisted Liverpool Football Club, will be watching closely.)

Covid lockdown-related violence at iPhone 14 plant

Reports are emerging of hundreds of workers protesting at a "closed-loop" campus run by Foxconn (listed as Hon Hai Precision, a Taiwanese company) where workers are kept isolated from the outside world as part of China’s zero-Covid policy.

These protests followed weeks of turmoil and a mass exodus of employees from the factory over Covid controls and shortages of food and medicine. Scenes were live-streamed (until halted and then taken down by censors) on various platforms showing the protests, including workers flipping over carts, smashing a Covid testing booth, pulling down quarantine barriers and arguing with hazmat-suited personnel.

Foxconn is Apple’s biggest iPhone maker by far, accounting for 70% of shipments globally, with the Zhengzhou plant, where Foxconn employs about 200,000 people, the world’s largest iPhone factory. It also has other smaller plants in southern China and in India.

The situation at the plant will further damage the narrative of China being a reliable supplier and speed the relocation of some low-cost manufacturing elsewhere, including to Vietnam and India. Earlier this month, Apple warned of lower shipments of its premium iPhone 14 models.

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