As I understand it...

When an organisation floats it is equivalent to borrowing money in order to finance growth. In return for 'lending money', the lenders get a share of ownership in the business (and a share in any profits through dividends). The business uses their money as working capital but it effectively owes this money back to the shareholders (shown as a liability in the balance sheet).

When the shareholders decide they want their money back they sell their shares which they can only do if someone else is prepared to invest their own money to buy those shares. Share price moves up and down becuase more or less people are interested in buying and selling at any one time.

If at any point an individual or other company wants to gain full control of a company they can do this but they must return to the shareholders the current value of their investment i.e. buy their shares.
If the individual cannot pay the shareholders from the company's cash reserves he must borrow the money which is in effect converting an equity liability (money owed to investors) to a debt liability (money owed to a bank). The financial strength of the company isn't affected in the short term as the assets and liabilities remain at the same levels. It's just that the liability now becomes a debt to be repaid with interest rather than a group of shareholders who expect dividends. The new owner can take money out of the company in the form of dividends but only after the bank has been paid (and there are rules governing when dividends can be paid).

So effectively Glazer has decided to take the company private by repaying the shareholders' investment with borrowed money. What makes it a bit confusing is that he has sort of done it 'back-to-front'. Instead of the board of MUFC borrowing money to repay the shareholders and then delisting, he has borrowed the money sort of on behalf of MUFC, then used it to pay off the shareholders, voted himself onto the board, then trasferred the debt onto the company.
The end result is the same, it's just that he has done it from the outside in a hostile way because the board wouldn't agree to it.

Not sure if this helps, if any genuine financiers can shed more light, feel free.

Posted By: Braindrain on May 13th 2005 at 12:37:32

Message Thread

Can one of you City types (Tricky?) explain how it is that Glazer's takeover (Other Football) - Old Git, May 13, 10:20:51
- he can settle his personal debt on the company (Other Football) - Brendon Fearon, May 13, 10:37:15
  - it's not all random debts of his (Other Football) - Brendon Fearon, May 13, 10:53:36
    - oops - meant to reply to og (n/m) (n/m) (Other Football) - Brendon Fearon, May 13, 10:53:59
  - I don't think he can actually (Other Football) - Old Git, May 13, 10:39:43
    - I think when every city expert says he can do this then he probably can nm (n/m) (Other Football) - earlydoors, May 13, 10:55:03
- well i'm not a city type but from what i can gather (Other Football) - dantheman, May 13, 10:28:54
  - As I understand it... (Other Football) - Braindrain, May 13, 12:37:32
  - And therefore... (Other Football) - Jono, May 13, 10:31:41
    - yep, could sell the whole team if he wanted to (n/m) (Other Football) - Gus Poyet 26, May 13, 10:32:34
- I'm not yer man I'm afraid (Other Football) - Tricky Hawes, May 13, 10:28:04
- he can do what he wants now, he owns the place (Other Football) - Gus Poyet 26, May 13, 10:26:44

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