The company’s Board Of Directors unanimously approved the plan to explore the spin off, which the company began considering in July. I bought some in June as Steve Ballmer’s purchase of the LA Clippers for $2 Billion implied that MSG was undervalued. Presumably a similar realization led the company to explore this spin off to unlock that value. The company is being advised by LionTree Advisors.
In addition, the Board authorized a $500 million stock buyback and nominated Nelson Peltz and Scott Sperling as Directors. Mr. Peltz is an activist investor with extensive experience with spinoffs.
Tad Smith, president and CEO of The Madison Square Garden Company, said: “Investors favor companies with greater strategic focus on their core businesses. We are exploring the opportunity to improve upon the excellent shareholder return created since MSG’s spin-off over four years ago by separating our business into two companies, each with its own distinct value proposition for investors. The live entertainment company would be a premier live event and venue management company with expertise in areas such as productions and other entertainment content, marketing, sales, and event operations. The sports and media company would be a leading company that fields championship caliber sports teams and has the rights to distribute sports content on multiple media platforms. The first company would capitalize on significant opportunities to grow rapidly within the changing entertainment landscape. The second would enjoy steady growth and high cash flow that we expect will result in capital returns to shareholders.”
In addition to a portfolio of world-class, award-winning venues, the live entertainment company would include:
- MSG booking, an established industry leader, which effectively fills MSG’s venues with a wide variety of the most exciting and unforgettable events, including concerts, family shows and special events
- MSG’s productions, including the Radio City Christmas Spectacular, the nation’s #1 live holiday family show featuring the legendary Rockettes, and New York Spring Spectacular, a new large scale theatrical production set to debut in spring 2015
- MSG’s first-class venue management capabilities, as well as its sponsorship, marketing, ticketing and promotional expertise and platforms
- MSG’s strategic entertainment joint ventures
The sports and media company would include:
- MSG’s professional sports franchises: the New York Knicks, the New York Rangers and the New York Liberty, along with its development teams: the Hartford Wolf Pack and the Westchester Knicks
- MSG’s award-winning regional sports networks, MSG Network and MSG+
- MSG’s interest in SiTV Media Inc., the parent company of NUVOtv and Fuse networks
The company expects the spinoff will be tax free. Values of professional sports teams and their associated cable networks have been skyrocketing. Not only does MSG own premier franchises, it is the only publicly traded vehicle for investors to participate in these leagues so directly. So far the move has proven to be a power play for MSG. Investors cheered the announcement, pushing the stock up more than 16% in after hours trading.
Disclosure The author owns shares in MSG
Why Steve Ballmer’s purchase of the LA Clippers for $2 Billion implied that MSG was undervalued?