MSG Entertainment will separate its live entertainment business and MSG Network

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On October 26, 2022, Madison Square Garden

MSG
Entertainment Corp (NYSE: MSGE , $45.50, market cap: $1.6 billion) announced that it has filed a confidential initial Form 10 registration statement with the U.S. Securities and Exchange Commission (“SEC”) for the proposed spin-off of its traditional live entertainment and the MSG Networks business. In the first step of the transaction, holders of record of MSGE’s Class A and Class B common stock will receive a pro rata distribution that is expected to be equivalent, in the aggregate, to an approximately two-thirds economic interest in the live entertainment and media company, which will carry the name Madison Square Garden Entertainment Corp (SpinCo). The remaining approximately one-third economic interest in SpinCo will be retained by the current parent company, which will be renamed MSG Sphere Corp following the spin-off.
The retained shares will then be available in a tax-free exchange offer for MSG Sphere Corp. common stock. to raise capital for general corporate purposes and may be used in a subsequent pro rata spin-off to the shareholders of MSG Sphere Corp.

Earlier on 8/18, MSGE announced that its Board of Directors has authorized the Company’s management to explore a potential spin-off of its live entertainment business and MSG Network into a separately traded public company. As previously announced, the proposed spin-off will be structured as a tax-free spin-off to all MSGE stockholders. Completion of the transaction, however, remains subject to various conditions, including the effectiveness of the Form 10 Registration Statement, certain approvals of the League, receipt of a tax opinion from an advisor and final approval by the Board.

On November 4, MSGE announced that it will release its 1Q23 results and host a conference call to discuss the 1Q23 results on Wednesday, November 9, 2022 at 10:00 AM ET.

Following the spin-off, Madison Square Garden Entertainment Corp. is expected to (SpinCo) to include:

• A diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, Beacon Theater and The Chicago Theatre;

• The Company’s entertainment and sports booking business, which presents a broad range of compelling concerts, family shows and special events, as well as a diverse mix of sporting events to millions of guests annually;

• Radio City Rockettes and the Christmas Spectacular production, which has been a holiday tradition for 88 years;

• Valuable long-term Arena licensing agreements with the New York Knicks and New York Rangers, both playing their home games exclusively at Madison Square Garden; and

• MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG Sportsnet (formerly MSG+), as well as a companion streaming service, MSG GO, and features exclusive live local games from 5 NBA and NHL sports franchises.

After the spin-off, MSG Sphere Corp. (Parent Stub) is expected to include:

• MSG Sphere – state-of-the-art venues that will combine cutting-edge technology with multi-sensory storytelling to deliver immersive experiences on an unparalleled scale. The first MSG Sphere is currently under construction in Las Vegas and is expected to open in 2H23

• A majority interest in Tao Group Hospitality, a global dining and nightlife provider with over 70 branded locations in more than 20 markets on five continents;

• Approximately one-third of the economic interest in the live entertainment and media company, along with the majority of the Company’s cash.

Rationale of the transaction

MSG Entertainment is a global leader in live entertainment and the Company owns a collection of unique, world-class entertainment assets that investors are currently undervaluing. The proposed spin-off is therefore intended to address this valuation mismatch and create shareholder value for MSGE shareholders over the long term. It’s worth noting that MSG Entertainment was spun off tax-free from Madison Square Garden Company on April 17, 2020. The proposed split into two companies would allow shareholders to evaluate the assets and future potential of each company.

Similarly, both companies, on a stand-alone basis, could follow their own separate business strategy and capital allocation policy. MSG Entertainment has a growing portfolio of assets, including state-of-the-art venues focused on music and entertainment – MSG Sphere and Tao Hospitality Group, two businesses with global brands and significant long-term growth opportunities. The first MSG Sphere is currently under construction in Las Vegas and is expected to open in the second half of calendar 2023. In addition, MSG Entertainment (to be renamed MSG Sphere) will own approximately one-third economic interest in the live entertainment and media company , which would enable capital to be raised in the future.

The live entertainment and media company (to be renamed MSG Entertainment), with its valuable portfolio assets such as Madison Square Garden, production of the Christmas Spectacular and MSG Networks, is expected to generate significant free cash flow and benefit from the attractive live entertainment business growth profile.

Company description

Madison Square Garden Entertainment Corp (parent to be renamed MSG Sphere Corp)

Madison Square Garden Entertainment Corp. (MSGE) is a live entertainment provider consisting of venues, entertainment brands, regional sports and entertainment networks, dining and nightlife offerings and music festivals. The company was spun off from The Madison Square Garden Company on April 17, 2020. The company’s segments include Entertainment, MSG Networks and Tao Group Hospitality. The entertainment segment includes its portfolio of venues, such as Madison Square Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, Beacon Theater and The Chicago Theatre. MSG Entertainment is also building a new state-of-the-art venue in Las Vegas, MSG Sphere at The Venetian. In addition, the Company presents the original production – Christmas Spectacular Starring the Radio City Rockettes – and, through Boston Calling Events, produces the Boston Calling Music Festival. The MSG Networks segment includes the company’s regional sports and entertainment networks, MSG Network and MSG+, a companion streaming application, MSG GO, and other digital properties. The company’s two regional sports and entertainment networks, MSG Network and MSG Sportsnet, provide a wide range of live sports content and other programming. The Tao Group Hospitality segment includes its controlling interest in Tao Group Hospitality, a hospitality group with entertainment, dining and nightlife brands including Tao, Marquee, Lavo, Beauty & Essex, Cathedrale, Hakkasan and Omnia. The company reported revenue of $1.7 billion in the year ended June 30, 2022. Following the spin-off, RemainCo will be renamed MSG Sphere Corp., including MSG Sphere and a majority stake in Tao Group Hospitality. It will also hold approximately one-third of the economic interest in the live entertainment and media company (Spin-Off)

Live Entertainment and Media Company (Spin-Off, to be renamed Madison Square Garden Entertainment Corp.)

The live entertainment and media company (Spin-Off) will include a diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, Beacon Theater and The Chicago Theatre, along with the company’s entertainment and business with sports bookings and long-term arena licensing agreements with the New York Knicks and New York Rangers. It will also feature the Radio City Rockettes, the Christmas Spectacular production and MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG+, as well as a companion streaming app, MSG GO. The company’s two regional sports and entertainment networks, MSG Network and MSG Sportsnet, provide a wide range of live sports content and other programming.

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