| July 12
July 12 Companies often incorporate in the
Cayman Islands for tax reasons. But in the case of Manchester
United, the English soccer team seeking an initial public
offering on the New York Stock Exchange, the advantage accrues
to its controlling family, the Glazers, at the expense of new
As part of its IPO, the legendary sports franchise will use
a new Cayman Islands company to sell shares, even though the
club's operations are in Britain.
The company and its owners declined to explain why they
would incorporate in the Caymans. A spokesman cited Securities
and Exchange Commission restrictions on communications by
companies preparing for an IPO.
But experts said the structure offers important perks to the
family of U.S. businessman Malcolm Glazer, who acquired the
sports franchise in 2005 for around $1.47 billion.
Chief among them: the two classes of shares allowed under
Caymans law. This structure allows the family to retain control
by holding shares with 10 times the voting rights of average
investors, even as they raise money from the public to pay down
the club's $655 million debt and reduce its onerous interest
"The current owners are lowering the possibility of larger
investors buying up all the liquid shares in the market and
affecting its management," Sverrir Sverrisson, an equity analyst
at Saxo Bank in Copenhagen, Denmark, said in an email. "This is
not beneficial for the potential shareholders."
British exchanges where rival teams have listed in the past
don't permit dual share structures. Hong Kong, where the company
had considered listing after financial turmoil in 2011 tanked
plans to list in Singapore, also doesn't allow them.
As an "exempted" company under Caymans law, one that does
not do substantial business there, Manchester United won't need
to hold annual shareholder meetings or disclose shareholder
registers. Cayman laws make hostile takeovers or removal of
board directors difficult as well.
These governance benefits, not tax savings, could be the
main driver of the Caymans location. "It is regulatory arbitrage
rather than some tax advantage," said Duke University professor
Campbell Harvey, an expert in international business.
But there are tax ramifications for investors and the
Counter to the Caymans' usual tax benefits, Manchester
United expects its tax rate to rise after this deal, according
to its SEC filing.
Until now, the club has paid only British taxes, but by
going public as a company based in the Cayman Islands, the
Glazers are triggering a section of U.S. tax law that requires
overseas companies with majority U.S. ownership to pay U.S.
The provision dates from 2004 when it was enacted in
reaction to a wave of U.S. companies such as Tyco and Stanley
Works, which planned offshore moves to save on taxes. Tax
experts say this is the first time they have seen a company opt
into this tax treatment in this way.
It will cost the company more in tax, but the Glazers, who
currently fully own Manchester United through a Nevada
partnership controlled by family trusts, could well see some
personal tax benefits, these experts say.
The Caymans structure could act as a way for the Glazers to
legally avoid a potential capital gains tax of 15 percent on the
pre-IPO value of the company. That tax could have kicked in if
they had listed in Britain instead.
Jason Factor, a tax partner at Cleary Gottlieb Steen &
Hamilton in New York, said that through the Cayman move "the
family avoids any tax that might otherwise be triggered for them
by a transfer of their U.S.-owned assets to a foreign company."
The Glazers could also be seeking to minimize estate and
gift taxes by holding pre-IPO assets in their family trusts,
said Daniel Shaviro, a tax professor at New York University
School of Law.