What happened
Shares of Britain's publicly traded Manchester United (NYSE: MANU) football club soared for a second straight day in early Tuesday trading, gaining another 13.5% through 10 a.m. EST after rising nearly 15% on Tuesday.
The reason: Yesterday after close of trading, Manchester United announced that it will explore "strategic alternatives to enhance the club's growth."
So what
Now, that all sounds a bit vague, but in investing circles, "exploring strategic alternatives" is often code for "looking to sell the company" -- generally at a premium price -- and that's what's getting investors excited about this stock.
There aren't a whole lot of publicly traded sports teams available for ordinary investors to buy into, after all. In addition to Manchester United, the easiest to own are probably baseball franchises like the Toronto Blue Jays, owned by Rogers Communications, or the Atlanta Braves, part of The Liberty Braves Group, or for basketball and hockey fans, the New York Knicks and Rangers, respectively, both owned by Madison Square Garden Entertainment.
Or more famously, the Green Bay Packers. (The Packers are a fine football team, by the way, but they're also kind of a lousy investment.)
Now what
But this is a story about Manchester United. How excited should you get about Manchester United's announcement that it may be for sale?
Answer: Perhaps not too excited. For one thing, while "strategic alternatives" probably implies a for-sale sign, management cautions that "there can be no assurance that the review being undertaken will result in any transaction involving the Company," nor is there a guarantee that any sale will be at a price higher than what Manchester United stock fetches today. For that matter, management may decide not to sell at all, but simply attract new investment into the company -- investment that would probably be dilutive to existing shareholders.
Also worth considering is the reason Manchester United might feel it needs new investment, to wit, the fact that the company has lost money in four of the past five years -- and indeed, according to analysts polled by S&P Global Market Intelligence, is expected to keep on losing money for at least the next three years.
Simply put, as a stock, Manchester United has long been a loser. If I were you, I'd think long and hard before deciding to pay 30% more than the stock cost on Monday to own it.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends ROGERS COMMUNICATIONS INC. CL B NV. The Motley Fool has a disclosure policy.
