Billionaire James Dolan is merging the company that owns the Madison Square Garden arena with the cable network that broadcasts the New York Knicks games to local fans – and investors are racing for exits.
Madison Square Garden Entertainment – which in addition to the Garden owns Radio City Music Hall and the chain of restaurants and nightclubs Tao – announced on Friday that it will buy MSG Networks for about $ 900 million in shares.
The shares of the companies – both controlled by Dolan, who also owns the Knicks and the New York Rangers – plummeted with the news, with MSGE closing down 9.9% to $ 84.67 and MSGN falling 7.6% to $ 16.06.
This is in addition to the sharp drops since news of the deal was first released on March 10. Although MSGE’s offer to purchase represents a 4 percent premium for MSG Network shares that day, investors complained on Friday that their combined market values had already fallen by approximately $ 750 million.
Wall Street fears the union in part because MSG Entertainment, after losing more than $ 250 million in the pandemic, appears to be moving forward on a controversial plan to build its expensive ball-shaped arenas across the country. For some, Friday’s deal looks like a sign that MSG Entertainment needs MSG Networks as a source of money.
“The question for shareholders is whether this is an indicator that there are funding challenges at MSGE,” an angry shareholder told The Post, adding that during a conference call on Friday, executives “did not address what the two companies they could do better together than what they can do separately. “
In a written statement, MSG Entertainment said the new company would be better positioned to support the expansion of legal sporting gambling. MSG Networks has two regional sports and entertainment channels, as well as a streaming service in the New York area.
The new company would also enjoy tax efficiency and “would have greater financial flexibility to finance current growth initiatives, including its planned state-of-the-art location in Las Vegas, [the] MSG Sphere on Venetian, ”said MSG Entertainment.
Dolan was not on Friday’s call and company executives refused to answer several questions about MSGE’s development projects. This included whether the merger would speed up the timing of the opening of the London Sphere. MSG’s Las Vegas Sphere is scheduled to open in 2023, the company said.
The merger also disappointed some shareholders of MSGE, as it changes the logic for the purchase of the shares.
“The thesis about MSGE is that this is live entertainment – a reopening of the economic play,” complained the angry shareholder. “Buying a cable network dilutes that story.”
In 2015, Madison Square Garden separated its sports and entertainment business from its media business, making MSG Networks an independent media company. Last year, Madison Square Garden separated its MSG Entertainment from Madison Square Garden Sports, which owns Knicks and the Rangers.
MSG Entertainment officials declined to comment further on Friday.