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Deal Overview
On August 18, 2022, Madison Square Garden MSG Entertainment Corp (NYSE: MSGE, $60.61, Market Capitalization: $2.1 billion) announced that its Board of Directors has authorized the Company’s management to explore a potential spin-off of its live entertainment and MSG Network businesses into a separately traded public company. The proposed spin-off would be structured as a tax-free transaction for all MSG shareholders. Upon completion of the contemplated separation, record holders of MSGE Class A and Class B common stock would receive a pro-rata distribution, expected to be equivalent, in aggregate, to an approximately two-thirds economic interest in the live entertainment and media company. The remaining common stock, expected to be equivalent to an approximately one-third economic interest in the live entertainment and media company, would be retained by MSG Entertainment (RemainCo). The retained shares would then be available 1) for use in a tax-free exchange offer for the common stock of MSG Entertainment, 2) to raise capital for general corporate purposes, and/or 3) for use in a follow-on pro-rata spin-off to MSGE shareholders. The Company has not set a timetable for the completion of this spin-off transaction. The completion of the transaction would be subject to various conditions, including certain league approvals, a private letter ruling from the IRS, receipt of a tax opinion from counsel, and final MSG Board approval.
Madison Square Garden Entertainment Price Performance
Spin-Off Research
Post the contemplated spin-off , MSGE Entertainment (RemainCo) will include MSG Sphere and a majority stake in Tao Group Hospitality. The first MSG Sphere is currently under construction in Las Vegas and is expected to open in the second half of calendar 2023. It will also include approximately one-third economic interest in the live entertainment and media company and most of the Company’s cash on hand. The live entertainment and media company (Spin-Off ) would include a diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre, along with the firm’s entertainment and sports bookings business and long-term arena license agreements with the New York Knicks and New York Rangers. It will also include the Radio City Rockettes, the Christmas Spectacular production, and MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG+, and a companion streaming app, MSG GO.
Spin-Off Details and Top 5 Shareholders
Spin-Off Research
Deal Rationale
MSG Entertainment is a global leader in live entertainment, and the Company possesses a collection of unique, world-class entertainment assets which are currently undervalued by investors. Hence the proposed spin-off is aimed to bridge this valuation mismatch and create shareholder value for MSGE shareholders over the long term. The market welcomed this announcement, with stock advancing by approximately 3.5% a day after the announcement (8/19). It is worth noting MSG Entertainment was spun-off tax-free from the Madison Square Garden Company on April 17, 2020.
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The proposed separation into two companies would enable shareholders to evaluate each Company’s assets and future potential. Similarly, both companies, on a standalone basis, would be able to pursue their own distinct business strategy and capital allocation policy. MSG Entertainment has a growing portfolio of assets, including state-of-the-art music and entertainment-focused venues – 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. Furthermore, MSG Entertainment will hold an approximately one-third economic interest in the live entertainment and media company, which would provide an opportunity to raise capital in the future.
The live entertainment and media company, with its valuable portfolio of assets such as Madison Square Garden, the Christmas Spectacular production, and MSG Networks, is expected to generate substantial free cash flow and benefit from the attractive growth profile of the live entertainment business.
Key Data
Spin-Off Research
4Q22 & FY22 Result Review
For 4Q22, MSGE reported revenues of $453.5 million, up 74% YoY, compared to $260.6 million in 4Q21 due to increased revenues from Entertainment and Tao Hospitality segment partially off set by decreased revenues in the MSG Network segment. The Company reported an adjusted operating income of $0.7 million in 4Q22, compared to an adjusted operating income of $2.5 million in the prior-year quarter. For FY22, MSGE reported revenues of $1.7 billion, up 112% YoY, compared to revenues of $814.2 million in FY21 due to resurgent consumer demand for the Company’s product portfolio. The Company reported an adjusted operating income of $133.6 million in FY22, compared to an adjusted operating income of $40.2 million in FY21. As of June 30, 2022, MSGE had approximately $829 million cash on hand, while the total debt balance was roughly $1.76 billion.
Company Description
Madison Square Garden Entertainment Corp (Parent)
Madison Square Garden Entertainment Corp. (MSGE) is a provider of live entertainment consisting of venues, marquee 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 comprises its portfolio of venues, such as Madison Square Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. The MSG Networks segment comprises the Company’s regional sports and entertainment networks, MSG Network and MSG+, a companion streaming application, MSG GO, and other digital properties. The Tao Group Hospitality segment features 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. It operates approximately 70 entertainment dining. The Company reported revenue of $1.7 billion in the year ended June 30, 2022.
After the contemplated spin-off , MSGE Entertainment (RemainCo) will include MSG Sphere and a majority stake in Tao Group Hospitality. It will also have approximately one-third economic interest in the live entertainment and media company (Spin-Off ) and most of the Company’s cash on hand.
Live Entertainment and Media Company (Spin-Off )
The live entertainment and media company (Spin-Off ) would include a diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre, along with the firm’s entertainment and sports bookings business and long-term arena license agreements with the New York Knicks and New York Rangers. It will also include the Radio City Rockettes, the Christmas Spectacular production, and MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG+, and a companion streaming app, MSG GO.
Organization Structure Pre Spin-Off
Spin-Off Research
Organization Structure Post Spin-Off
Spin-Off Research
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