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Wednesday, July 11, 2012
Venerable guitar-maker Fender and even older British soccer team Manchester United have filed papers with the U.S. Securities and Exchange Commission to sell shares of their enterprises publicly -- and deem themselves "emerging growth companies" under the controversial new Jumpstart Our Business Startups Act" (JOBS Act). By doing so, they are able to cut the time and effort of reporting adequate internal controls and sidestep other regulatory tasks. That raises concerns among investor advocates.
How old and grown-up can you be and still be labeled “emerging growth”?
Fender Musical Instruments and Manchester United, two of the biggest and oldest names in guitars and soccer, respectively, have formally notified securities regulators that they seek to sell stock in their companies.
In addition, they also look on themselves as "emerging growth companies" under the newly minted JOBS Act, which was signed into law April 5. Being such an "EGC" -- for Fender, a potential status first reported in this blog in May -- makes for regulatory short-cuts that worry investor advocates. The New York Times reported July 4 that the team known as "Man U" -- founded in 1878 -- was going public and says that it qualifies as an EGC.
In a prospectus that features photos of Jimi Hendrix, Buddy Holly, and Eric Clapton wielding Stratocasters (what other company can do that?), Fender wrote, “We are are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and, as such, will be subject to reduced public company reporting requirements.”
For their part, analysts and a former securities regulator point to reduced safeguards for investors and what they suggest is an inappropriate use of the EGC label.
"Fender Musical Instruments Corp. should choose to avoid the 'purple haze' created by the JOBS Act by opting out of the anti-investor provisions" of the law, Jeffrey Mahoney, general counsel of the Council of Institutional Investors and a CPA, told me in April. "Those provisions allow 'emerging growth companies' like Fender to defer important disclosure, accounting, auditing and investor rights requirements that are essential to an efficient and effective capital market system."
Other CPA-investor advocates, former SEC Chief Accountant Lynn Turner and Jack Ciesielski, the publisher of Analyst's Accounting Observer, also took issue with Fender's ability to accord itself the status that Congressional lawmakers touted as a time-saver and job-creator reserved for callow start-ups wanting to enter the chilly waters of capital-raising. If a company records less than $1 billion in annual revenue and has a public float of less than $700 million, they can be an emerging growth company under the new law.
“Large old companies like Fender … are anything but” emerging growth enterprises, Turner suggested a few months ago.
Fender and ManU: Chrysalises?
Among many around the world, Fender and Manchester United are household names – and they hardly fit the model of the garage-born start-up or other small firm, the main beneficiary described by venture capitalists and Congressional allies who boosted the JOBS Act. It’s difficult to see them as corporate chrysalises waiting to change into butterflies ready to take wing.
Fender was founded in 1946. It was once owned by broadcast giant CBS - before Fender itself started buying large numbers of smaller companies, including start-ups born on concrete slabs, such as California amp-maker SWR.
Man U, the team, was formed 68 years before Fender guitars hit shops and stages. In addition, the venerable inhabitant of Old Trafford, the famous 75,666-seat stadium for ‘footie” in Manchester, previously was a public company, according to The New York Times. Manchester United, the company, used to trade on the London Stock Exchange before its U.S. owner privatized the firm seven years ago in a $1.45 billion buyout, The Times reported.
Fender plans to list on the Nasdaq Global Market. Manchester United -- operated by a company that is to be part of a new holding company, Manchester United Ltd., to be based in the Cayman Islands -- wants to see its shares traded on the New York Stock Exchange.
In its prospectus, Manchester United Ltd. says that the soccer team it would sell stock in has “659 million followers.” The company bases that on answers, “unprompted,” to survey questions by respondents who stated that Man U was either “their favorite team in the world or a football team that they enjoyed following.” The company boasts “competitive strengths” such as Manchester United being “one of the most successful sports teams in the world” with “one of the world’s most recognizable brands.”
659 million followers. Not a bad potential investor pool for an emerging growth company.
-- Steve Burkholder (Steve Burkholder is a Bloomberg BNA staff correspondent.)
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