A walk down memory lane is not always a game for the old. But it can be very useful for the football fan.

It is this thought that makes me ask: will the Red Knights plan to buy Manchester United go the way of Project Merlin?

Never heard of Project Merlin?

Well, it was not quite Arthur and the Knights of the Round Table but, in the end, it proved as much of a fantasy for those Manchester United fans who were trying to stop Glazer as did Camelot.

Let me remind you of the story. It is worth revisiting not least because some of the same cast of characters are involved in the Red Knights as were involved in Project Merlin, six years ago.

Project Merlin began on 5 November 2004 when Gary Wilder, Managing Director and co-head of Nomura’s Asset Finance Group, wrote a four page letter. The letter offered to help Manchester United supporters to buy out the Glazers and also Magnier, McManus and the other Irish shareholders.

The time we are talking about is when United were a public company. The United board have had bruising battles with the Irish following their bust up with Sir Alex Ferguson over the horse Rock of Gibraltar. The board are now in the middle of trying to keep the Glazers at bay having initially encouraged them as a white knight to save them from the Irish.

The Nomura letter, marked “strictly private and confidential” and “subject to contract”, was addressed to Jules Spenser, the chair of IMUSA, Nick Towle, chair of Shareholders United, with copies to Keith Harris and Harvey Alexander, another member of Shareholders United.

Project Merlin was the name Nomura had given to Manchester United. The club’s name did not appear in the letter. Both the Irish and Glazers were identified although for much of the letter they were abbreviated to C, standing for Cubic, the company through which the Irish owned the United shares, and G.

Wilder’s plan was to buy out G and C. £3 a share would do it. Wilder was assuming a small premium of 5 per cent to the current share price would be “required to persuade G and C to agree to our proposal”. This, said Wilder, would mean raising £450m. Nomura would provide £230m of secured long term debt finance with the balance being funded by a rights issue of £220m:

“Under this strategy, shareholders would be presented with a package that includes both an orderly exit by G and C, and a financing proposition that would be of long-term benefit for the company. It is assumed that a board of Merlin would come to the view that this proposal is in the interest of Merlin and that they would be satisfied that the benefit to the company of arranging an exit for G and C by way of buy-back is sufficient to justify the company incurring the required level of debt to effect the buy-back and to pay the potential premium that may be required.”

The scheme that Wilder presented was a leveraged buy-out and complicated in the extreme. It involved several scenarios. It would require board approval. However if this was not forthcoming, the letter discussed issues such as removing the board or replacing directors who did not agree which would mean calling an egm. There would also have to be a court approved “scheme of arrangement” whereby a new holding company was formed and superimposed on the existing one. This would be necessary since, under the Companies Act, a company can only buy back shares from distributable profits. At that time Manchester United had £95m for that purpose. Given it would require £450m to buy out G and C, this meant a further £335m would be required. The rights issue would provide £220m of the money but Nomura also suggested that it would be necessary to increase reserves to be used to buy shares. This would come from a reduction of capital requiring the scheme of arrangement and the formation of a new holding company. It is this new holding company that would agree to a reduction of capital so as to create a total of £135m of distributable reserves. As an alternative, Nomura also proposed forming an unlimited liability company, or a company registered abroad, which could then issue preference shares at a subscription price of £135m to an “orphan” company that would be financed by Nomura. All this would mean a shareholders meeting with 75 per cent of those present voting in favour for the scheme to go ahead.

What is fascinating is that, in order to get rid of the Glazers and the Irish, the fans had discussed with Nomura a plan to load on Manchester United, a debt only slightly less than the level of debt that Glazers eventually loaded on to the club.

Some months later Nomura proposed Merlin Mark 11. In this plan they promised to leverage shares held by the Manchester United Supporters Trust. Essentially this meant that, for every pound worth of Manchester United shares, Nomura was prepared to lend the trust another pound to buy more shares.

The supporters had mailed all the independent shareholders and there was much talk in the press that the supporters trust could speak for about 18 per cent of the shareholding. (In reality as it subsequently turned out, they probably spoke for no more than 1 per cent, maybe as little as 0.3 per cent.)

The supporters had a plan to write to Manchester United shareholders and invite them to pool all their shares into an investment trust.

The hope was that, with Nomura’s help, this could be raised to 25 per cent and in effect form a blocking shareholding.

When the plan was revealed in the Sunday Times, it caused quite a stir and fans of United all over the world thought, as one supporter put it to me, “Wow there is a way to stop the Glazers.”.

In fact there was no way the Glazers could be stopped. They had secured the money, albeit by borrowing, and, when in May 2005 they made their offer to the Irish, it was instantly accepted. Match over.

So why did Project Merlin not work? The simple answer is that the Irish were the key to Manchester United’s future. The Irish were fed up with the board and, when the money was right, they went.

In a sense the present situation is somewhat similar. If the Red Knights could make a tempting offer to the Glazers, the Red Knights could go where Merlin failed.

But that is a very big if. First of all the Red Knights would have to raise well over a billion. Then they would have to keep a very disparate coalition going. Observe in Project Merlin that there was no end of tension between fan groups and between those supporters they distrusted as the suited prawn-sandwich brigade like Keith Harris.

Many of the vocal supporters had rewritten history following Rupert Murdoch’s failed attempt to buy the club in 1998. This was seen as a victory by the fans when Murdoch’s bid was actually stopped by regulators worried it would give Murdoch’s company too much control. However the fans version was widely believed, not least by the fans themselves.

After the victory, the two main organisations IMUSA, which had existed for some years before the Murdoch bid, and Shareholders United, which was born as a result of the bid, decided it made more sense to go their separate ways.

Ferguson’s problems with the Irish had also encouraged fan groups which chose illegal methods of protest. These included previously unknown groups such as the Manchester Education Committee. This shadowy group indulged in violent protest and the more respectable fan groups never convincingly condemned them.

Then there was much angst about the role of Keith Harris. He had played a prominent part in the Nomura plans but was viewed with deep suspicion by many fans having been an adviser to the board on the Sky bid. He was also an old friend of former chairman Martin Edwards and, of course, a suited Manchester United supporter.

With the Red Knights, Harris and Nomura are again involved and it is interesting that David Gill, the club’s chief executive, has concentrated his fire on Harris. Their mutual distrust goes back a long way and may not augur well for any deal with the Glazers.

For the Red Knights to triumph, they must convince the Glazers that they can walk away from United with a profit and that continuing to own the club will only give them grief.

Project Merlin was always a fantasy and the Red Knights will have to do a lot more to convince me that they will not end up in that same fantasy land.


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