Cablevision Systems Corp. (NYSE:CVC) CEO James L. Dolan metaphorically donned his cheerleading outfit Thursday when he announced the company's board authorized the green light for the media conglomerate to spinoff its Madison Square Garden assets. The move has been much anticipated since the Bethpage, N.Y.-based company announced in May that it was exploring the possibility of the deal. Confirmation of the transaction pushed the stock up nearly 8% in late-morning trading. (Subscribers to The Deal Pipeline may read the full story here.)
"The new MSG will be an attractive combination of sports, entertainment and programming properties, while Cablevision will continue to house a portfolio that includes industry leading telecommunications services and popular programming networks," Dolan said in a statement.
The spinoff comes at a curious time for Cablevision since it is set to pay for a massive renovation for the Madison Square Garden arena, which it said will cost more than the original estimate of $500 million. For now, it's unclear how the spinoff would directly help pay for the renovation, but Cablevision said it is "not considering the sale of MSG, any of MSG's businesses or any other Cablevision business at this time."
Meanwhile, some observers outside the Cablevision family were also enthusiastic about the deal.
"It's an extremely smart decision," Rich Greenfield, an analyst at Pali Capital LLC, told Bloomberg earlier this month in reference to a possible spinoff. "It will not only highlight the strong free cash flow of Cablevision's core cable business, but it certainly makes an acquisition of the company easier in the long term, as it will remove the hardest asset to value within the company."
The news seemed to overshadow Cablevison's second-quarter earnings report of 29 cents per share, which was in line with analyst expectations. What's interesting to note is that revenue at Madison Square Garden -- the unit that is being spun off -- declined 1% to $207.3 million as it took a loss of $8.4 million. The fall was attributed to loss of playoff revenue at MSG
Sports and fewer concerts and other entertainment events. Meanwhile, costs increased by $21.4 million on severance
costs and salary increases.
Cablevision shares are up about 8% in midday trading. - Gerald Magpily
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