Sir Alex Ferguson Retires as Manager of Manchester United | How will the market react?
City Index May 8, 2013 3:10 PM
<p>This morning, Manchester United confirmed that Sir Alex Ferguson would retire at the end of the season. So how will Manchester United’s share price react […]</p>
This morning, Manchester United confirmed that Sir Alex Ferguson would retire at the end of the season. So how will Manchester United’s share price react when trading in New York opens at 2.30pm?
Rumours swirled last night that Sir Alex Ferguson was set to step down as manager of Manchester United and was likely to be replaced by either David Moyes, the current Everton FC manager or Jose Mourinho, the Real Madrid boss.
As a public company, the response from Manchester United to the speculation had to be extremely calculated.
Manchester United is listed on the New York Stock Exchange (NYSE). There are specific rules and guidance on how a public company deals with market rumours or unusual market activity. From the NYSE manual, the following is pertinent:
“If rumors or unusual market activity indicate that information on impending developments has leaked out, a frank and explicit announcement is clearly required. If rumors are in fact false or inaccurate, they should be promptly denied or clarified.”
This is why Manchester United had to make a comment before the opening of the US stock market at 2.30pm today. The fact that they did not quash the rumours last night spoke volumes. Clearly there was validity to them.
The fact that the club has now confirmed the rumours that Ferguson was retiring at the end of this season was therefore not a surprise given the speculation of the last 12 hours.
That does not mean the news is not shocking of course. Alex Ferguson is amongst greatest managers in the history of football. He has managed Manchester United for 26 years, winning his thirteenth league title this year from staunch rivals Manchester City and will complete his 1500 game as manager when the club face West Brom on the final day of the season. He has won 49 trophy’s in his managerial career.
How will shareholders react?
Replacing Alex Ferguson is a monumental task and one that shareholders will watch with great interest and nervous uncertainty. The club recently announced a 31.9% increase in revenues for the third quarter, and was on track for revenues of between £350m to £360m for the year end.
Success on the pitch is vital in the clubs growing commercial success and the Man Utd brand. This is why the man who replaces Sir Alex Ferguson is a significant factor in shareholder confidence.
The potential appointment of David Moyes comes with great risk. The Everton manager has performed incredibly well at Everton within a tight fiscal budget and minimal wage structure. The similarities to Sir Alex Ferguson are however telling. They are both Glaswegians, loyal to their clubs and have seen strong managerial growth in their careers. Ferguson was 44 years old when he joined Manchester United. David Moyes is 50yrs.
However, Ferguson had won the UEFA Cup Winners Cup with Aberdeen FC alongside multiple league titles before joining Man Utd. Moyes has a mere second division league title with Preston North End to add to his managerial honours list alongside an FA Cup runners up medal with Everton. This honours list is hardly inspiring for Man Utd shareholders that Moyes has the track record to continue Ferguson’s history of consistent success on the pitch.
The reaction from shareholders to this appointment is likely to be one concern and trepidation.
A second candidate is the Real Madrid boss Joe Mourinho, who had been long rumoured to be imminently rejoining Chelsea as manager.
Jose Mourinho comes with baggage, media drama and arrogance but the element that sets him apart from Moyes is that he is winner. Mourinho is the same age as Moyes but has won major trophy’s for all of the big clubs he has managed in the last decade; Porto, Chelsea, Inter Milan and Real Madrid.
He has the knowledge, success and determination to continue Man Utd’s trophy winning streak and would be a much safer appointment in the eyes of the Utd board and shareholders. A lingering concern could however be damage to the Man Utd brand a Mourinho appointment may bring considering the baggage he brings and somewhat arrogant approach he exerts to the media and football authorities. Man Utd have a degree of class about how the operate and this could be undermined by Jose Mourinho. That is a risk worth considering.
That said, undoubtedly a Mourinho appointment would be received much more warmly with shareholders than David Moyes. More so, the appointment of Jose Mourinho is perhaps the only appointment the club could make that would actually increase the clubs brand recognition. That is a very powerful consideration.
Not a time to dither
The club must make the announcement of Fergusons replacement quickly too. Uncertainty breeds nervousness and typically results in downward pressure on share prices.
Man Utd share prices have rallied well of late. Since hitting a low of $12 in September last year, shares have rallied 56% as the club performs well on and off the pitch, snapping up new global commercial partners and sponsors.
All eyes on the clubs share price when the US markets open at 2.30pm.
Share prices are likely to open lower but by what degree of severity is hard to tell at this stage. There is no precedence in the modern age of both football and markets of this nature. If shareholders needed an excuse to take their profits off the table, they got it this morning. But will the news impact long term shareholders who bought into the share price on the clubs commercial prospects? I don’t think so. Those selling Man Utd’s shares price today will do so out of fear and uncertainty.
Of course Ferguson had to retire at some stage. Be it today, tomorrow, or in two years time. This was extremely transparent in the prospectus and road shows when the club was canvassing prospective shareholders last year before the IPO. Long term shareholders will unlikely be convinced into selling their holdings on today’s announcement. However, they will now be watching how the transition phase develops with the new manager and the impact on the pitch.
Success on and off the pitch is interlinked and the key driver behind shareholder confidence. That is where shareholder motivation is concentrated.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.