Cablevision Systems Corp. rose the most in four months after deciding to spin off its Madison Square Garden assets and focus on the profitable New York-area cable-television business.
Chief Executive Officer Jim Dolan, whose family controls Cablevision, will take on the role of executive chairman of Madison Square Garden, the company said today. The new business’s CEO will be Hank Ratner. Its assets include the New York Knicks basketball team and Radio City Music Hall.
Spinning off the unprofitable division will allow Cablevision’s stock to move higher, more accurately reflecting the value of the cable operations, said Chris Marangi, a Gabelli & Co. analyst in Rye, New York. Gabelli is an affiliate of Gamco Investors Inc., a Cablevision investor that pushed for the spinoff last year.
“The separation will provide a real boost,” Marangi said. “It could facilitate other transactions, like potential acquisitions, making it easier for other companies to pursue Cablevision.”
Gamco owns about 19 million Class A shares of Cablevision. The Dolans control the Bethpage, New York-based company through their ownership of multiple-vote Class B stock.
Cablevision climbed $1.66, or 8.8 percent, to $20.59 at 4 p.m. in New York Stock Exchange composite trading, the biggest jump since March 23.
Cash Flow
The Madison Square Garden division could be worth $1.1 billion, or $3 a share, Collins Stewart LLC’s Tom Eagan said.
“MSG really hasn’t been fully valued by the Street,” the New York-based analyst said. “The division simplifies Cablevision’s structure and allows for greater free cash flow now that it doesn’t have the expense of the Garden.”
The valuations of sports clubs in recent transactions, such as the Montreal Canadiens sale, suggest Madison Square Garden’s stock could rise as high as $7, Eagan said. He advises investors to buy Cablevision’s stock.
The assets being spun off also include the Madison Square Garden arena, the Rangers hockey team and two New York-area sports networks. Cablevision said in May that its board authorized management to explore a spinoff.
Three Units
The new Madison Square Garden entity will be divided into three divisions: MSG Media, which would consist of the company’s cable channels; MSG Entertainment, which includes concerts and events promotion; and MSG Sports, which will house the team franchises, Ratner said on Cablevision’s conference call today.
The new company won’t carry any debt at first, though it may seek credit if necessary, Ratner said. Madison Square Garden’s $500 million renovation plan is going over budget, he said.
Cablevision also said today that second-quarter earnings amounted to 29 cents a share, compared with the 28-cent average of estimates compiled by Bloomberg. Sales advanced 9.8 percent to $1.88 billion, in line with projections.
Revenue from the Madison Square Garden division was little changed at $207.3 million, with an operating loss of $8.4 million. That compared with a 5 percent revenue increase at the cable division, which accounts for almost three-quarters of total sales.
Share Split
Cablevision’s Class A stockholders will get Class A shares in the new company, while the Class B holders would receive Class B stock, giving the Dolans control of both businesses. The spinoff should be complete by year-end.
Cablevision reiterated it is not considering the sale of Madison Square Garden, any of its businesses, or any other Cablevision asset at this time.
Gamco CEO Mario Gabelli urged the cable operator to pursue the spinoff, threatening a proxy fight in 2008. Investors criticized Cablevision at the time for spending money from its cable service on media properties instead of on the main business, or returning some profit to shareholders.
Cablevision and ITT Corp. bought Madison Square Garden from Viacom Inc. for $1.08 billion in 1994. Less than three years later, ITT sold its stake, along with stakes in the Knicks and Rangers, to Cablevision for $650 million. At the time, Chairman Charles Dolan called the arena “as much a New York treasure as Central Park or Times Square.”
Family Business
Charles Dolan, the family patriarch, entered the cable business in the early 1960s when he began wiring New York City hotels for his company’s television reception. Dolan, 82, founded Cablevision in 1973 and took the company public in 1986.
Two years ago, he and son Jim Dolan, 54, tried to take the company private again, against shareholder opposition. The $10.6 billion offer was rejected after investors deemed the bid too low. The takeover was at least the third attempt by the family to go private.
Charles Dolan, also led a boardroom coup in March 2005 to stop the company from shutting down the Voom satellite service, after Jim Dolan sided against him.
The elder Dolan installed friends as directors, including Liberty Media Corp. Chairman John Malone and former Viacom Inc. Chief Executive Frank Biondi, to stop the shutdown. Malone has since resigned from the board.
(Source: Bloomberg)
