the Jumpstart Our Business Startups Act (JOBS) and Manchester United

JOBS

Earlier this year, over the strong objections of the SEC and knowledgeable financial industry observers, Congress passed the Jumpstart Our Business Startups Act.  As the acronym JOBS suggests, the avowed purpose of the act is to “increase American job creation and economic growth…”

The basic thrust of the act is to waive, for any firm with annual revenue under $1 billion,  SEC requirements that a company seeking to go public have strong internal financial controls and audited financial statements.

Another way to describe this kind of legislation is as a “race to the bottom,”  where countries try to boost their domestic investment banking industry by seeing who can loosen listing standards the most.  Thereby, the “winning” country attracts the largest amount of new listings.

Why we want to give investment banks a shot in the arm is a mystery to me.  You might ask Representative Stephen Fincher of Tennessee, the bill’s sponsor, or President Obama, who signed it into law.

a bad idea, in my opinion

I’ve seen this movie before–twice in the UK alone.  It invariably has an unhappy ending as undisclosed and undetected defects in the listing companies come to light.  Trusting investors get their fingers burned.  The country’s stock market gets a black eye.

The only “job creation” that occurs is at the underwriters and the law firms who are involved in litigation when shareholders sue.  Ironically, JOBS would appear to eliminate the latter source of employment.

enter Manchester United, a 134 year-old “emerging growth” company

The latest to take advantage of the JOBS Act is the UK professional soccer club Manchester United, which is going public today on the NYSE, under the ticker symbol MANU.  MANU was founded in 1878, by the way, so it has been “emerging” for a very long time.

Another curiosity.  MANU’s form F-1 registration statement is on file with the SEC.  F-1?  Isn’t a registration statement called an S-1?  Yes, normally it is.  But MANU isn’t an American company.  It’s a UK corporation.

Isn’t the natural home of a UK company the London Stock Exchange??

not London

Yes, but MANU has been owned since 2005 by an American, Malcolm Glaser (who also controls the Tampa Bay Buccaneers).  Mr. Glaser is very unloved in the UK because, as a foreigner, he possesses a national icon.  Going public there was out of the question.  The facts that MANU is heavily indebted, makes virtually no money and has a dual share structure (like the New York Times or Hershey) that preserves the Glaser control probably don’t help, either.

not Singapore

With London out, MANU decided to try to list in Singapore.  That makes some superficial sense, since reportedly two-thirds of its fans live in Asia.  Relative to Hong Kong, however, Singapore is an equity market backwater.

MANU subsequently withdrew its proposal, however, citing poor market conditions.  Speculation at the time was that the firm wanted to have at least one ultra-wealthy “cornerstone” investor that would give the offering added legitimacy, but was unable to find one.

not Hong Kong?

It’s unclear whether MANU approached Hong Kong, although this possibility, too, has been a subject of media speculation.  MANU’s lack of profitability might have made the attempt a non-starter.  Official rejection would have been an acute embarrassment for MANU, given that the Hong Kong regulators allowed Russian miner Rusal to list in 2010.

USA! USA!

Thanks to the JOBS Act and underwriters Jeffries, Credit Suisse and JP Morgan, the NYSE has snagged this prize.  Half the proceeds of the IPO will go to repay part of MANU’s $500 million+ in debt.  The other half will go to the Glaser family.

It will be interesting to see how the stock trades.

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