The Madison Square Garden Co (NASDAQ:MSG) has unveiled a plan to that would see it split into two standalone and publicly traded companies. The management cited that the move will result in more shareholder value. The company becomes the latest major player in the corporate America to announce slimming plans. Hewlett-Packard Company (NYSE:HPQ) and eBay Inc (NASDAQ:EBAY) are some other U.S. companies that have announced plans to split into small standalone business entities. Two rating firms have already upgraded Madison Square Garden based on its planned restructuring.
The Madison Square Garden Co (NASDAQ:MSG) confirmed that it would separate its sports and entertainment unit from its media business operation. The company is pursuing a tax-free separation that is expected to complete later this year. The company had announced late last year that it could consider breaking itself up, although it failed to provide finer details of the planned separation.
Following the confirmation of the planned breakup, a number of analysts have already weighed in on the stock of Madison Square Garden. Analysts at Topeka Capital upgraded their rating on the stock to a “Buy” from “Hold”, citing the potential benefits of the scheduled separation. Also, analysts at Morgan Stanley (NYSE:MS) cited the potential in the planned spinoff while raising their rating on the stock to “Overweight” from “Equal-weight”.
Benefits of the breakup
The management cited that the tax-free spinoff of the sports and entertainment unit will create more value for the existing shareholders. Specifically, the streamlined businesses are expected to generate more free cash flow that can be returned to shareholders through improved dividends and stock repurchase. Additionally, the breakup is expected to provide investors with two investment choices.
The company’s sports and business unit owns the Rangers, Knicks and also runs various concert venues. On the other hand, the media unit operates the MSG Network, which distributes entertainment and sports content.
Madison Square Garden’s advisers towards the breakup are JPMorgan Chase & Co. (NYSE:JPM), Sullivan & Cromwell and LionTree Advisors.