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MSG Entertainment spinoff could include venues, live entertainment

Madison Square Garden logoMSG Entertainment is exploring a potential spinoff separating its live entertainment business, including Madison Square Garden and MSG Networks, from the company’s MSG Sphere and Tao Group Hospitality businesses.

It’s an interesting split, though there would be some level of connectedness to the two separate businesses. The new live entertainment and media company is expected to 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;
  • The MSG’s entertainment and sports bookings business, covering an array of concerts, family shows and special events, as well as a mix of sporting events;
  • The Radio City Rockettes and the Christmas Spectacular production, a holiday tradition for 88 years;
  • Long-term Arena License Agreements with the New York Knicks and New York Rangers, both of which play their home games exclusively at Madison Square Garden; and
  • MSG Networks, comprising two regional sports and entertainment networks, MSG Network and MSG+, as well as a companion streaming app, MSG GO, featuring exclusive live local games of 5 NBA and NHL sports franchises.

After the proposed spin-off of the live entertainment and media company, MSG Entertainment is expected to include:

  • MSG Sphere, planned as a series of state-of-the-art venues combining cutting-edge technology with multi-sensory storytelling to deliver immersive experiences. The first MSG Sphere is currently under construction in Las Vegas and expected to open in the second half of calendar 2023;
  • Majority interest in TAO Group Hospitality, a global entertainment dining and nightlife provider, with over 70 branded locations within 60 venues in more than 20 markets across 5 continents;
  • An approximately one-third economic interest in the live entertainment and media company; and
  • The majority of the company’s cash on hand.

“This potential transaction would create two companies, each with a distinct value proposition for investors,” said Executive Chairman and CEO James L. Dolan via press release. “The live entertainment and media company would include Madison Square Garden, the Christmas Spectacular production and MSG Networks and would generate substantial free cash flow. The second company, comprised of MSG Sphere and Tao Group Hospitality, would be focused on unique shared experiences, innovation and global opportunities for growth.” The potential transaction would enable both companies to pursue distinct business and capital allocation strategies.

If MSG Entertainment proceeds with the separation, it would be structured as a tax-free spin-off to all MSGE shareholders. In the first step of the transaction, 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 approximately one-third economic interest in the live entertainment and media company would be retained by MSG Entertainment. Those 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.

This is not a done deal by any stretch: there’s no timetable to complete the proposed transaction, or a guarantee that the transition will be completed at all. Completion of the transaction would be subject to various conditions, including certain league approvals, receipt of a tax opinion from counsel and final MSG Entertainment Board approval.

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