Private equity, activists line up behind MSG split

Late yesterday, Madison Square Garden announced plans to explore splitting off its sports franchise business from its media business following pressure from a combination of activist investors and private equity. The company also announced new board appointments from private equity Scott Sperling, co-president of Thomas H. Lee Partners and Richard D. Parsons a senior advisor for Providence Equity Partners.

Parsons was re-appointed to his existing board seat.

In addition to its noted live entertainment venue, New York-based Madison Square Garden Company owns both the New York Knicks basketball team and New York Rangers hockey team. The plan would split the company into two publicly traded entities, one focused on the sports side and the other focused on events management.

“Investors favor companies with greater strategic focus on their core businesses,” Tad Smith, president and CEO of MSG, said in a statement. “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.”

MSG said it has been considering the split since July.

The company has been under increasing pressure from alternative investment firms to consider the split to improve shareholder value. Another board seat will go to Nelson Peltz, the co-founder of Trian Fund Management. Neither Thomas H. Lee Partners, Providence Equity, nor Trian own stakes in the company, although Trian is reportedly involved in a separate activist action attempting to split DuPont into two companies. That effort would split off the materials business from agriculture and nutrition.
Another hedge fund John Thaler’s JAT Capital has amassed a 9 percent stake in MSG and welcomed the news saying in an emailed statement, “we look forward to the full and timely implementation of these plans.”

JAT also said of Peltz and Sperling, “we believe will provide enhanced corporate governance and consideration of Class A shareholders' interests as business decisions are made.”

Thomas H. Lee Partners is currently in the market for its seventh buyout vehicle, having raised $930 million as of this month, PEI reported earlier. The firm is invested in a number of events and entertainment companies including Cumulus Media, Univision (alongside Providence Equity), and most notably iHeartMedia, formerly Clear Channel Broadcasting. Thomas H. Lee Partners invested in the Clear Channel $18.7 billion take private deal alongside Bain Capital.

Shares of Madison Square Garden were up over 10 percent in morning trading.