Cablevision Systems Corp plans to spin off its Madison Square Garden (MSG) unit by the end of the year, hoping to get a better valuation from Wall Street for assets including the New York Knicks basketball team and Radio City Music Hall.
Shares of the cable service provider jumped 9 percent after it said on Thursday that its board has agreed to move forward with the planned tax-free spinoff of MSG to shareholders, sparking speculation that this may be the first move by the controlling Dolan family to break up Cablevision.
But Chief Executive James Dolan warned investors not to read the MSG spinoff plan as anything other than a move to enhance shareholder value.
Cablevision is not considering the sale of MSG, any of MSG's businesses, or other Cablevision businesses at this time, Dolan said on a call with Wall Street analysts.
Collins Stewart analyst Thomas Eagan said the MSG unit will be worth more apart from Cablevision, which also includes the Rainbow Networks group of cable networks like AMC and WE.
The timing is good because the two recent sales of the Chicago Cubs and Montreal Canadiens, imply that the Knicks and the (New York) Rangers alone are worth $1.4 billion by our estimates, Eagan said.
The real value of MSG could be worth an extra $3 per Cablevision share, he said.
Analysts value MSG at between $1.5 billion to $2 billion as a stand-alone business plus debt.
Cablevision Vice Chairman Hank Ratner, who will become president and CEO of MSG, said the unit will not have additional debt at the time of the spinoff, though it will have the capacity to take on more debt. He added that the details will be in soon-to-be-filled regulatory documents.
Under the new structure, the Dolans would continue to hold a controlling stake in MSG, which also owns the namesake arena and New York Rangers hockey team.
James Dolan will become executive chairman of the new public company and continue as CEO of Cablevision. Cablevision founder Charles Dolan will continue as Cablevision chairman.
The company first said it was exploring the MSG spinoff three months ago.
Cablevision shares were up $1.58, or 8.4 percent, to $20.51 in afternoon trading on the New York Stock Exchange.
Separately, Cablevision said second-quarter net profit fell to $87 million, or 29 cents a share, from $95 million, or 32 cents a share.
Revenue rose nearly 10 percent to $1.88 billion, including revenue from the Newsday newspaper and Sundance cable network which it bought less than a year ago. Analysts were expecting $1.87 billion in revenue, according to Reuters Estimates.
Organic revenue rose 4.4 percent.
Cablevision lost 8,700 basic video subscribers during the quarter but added 56,000 digital subscribers.
Analysts at Collins Stewart had forecast addition of 2,000 basic subscribers and 61,000 digital video subscribers.
The company also added 17,900 high speed Internet and 37,600 digital phone subscribers.
Collins Stewart expected 29,000 high speed Internet subscribers and 60,000 phone subscribers.
Craig Moffett, analyst at Bernstein Research said it was another strong operating quarter for Cablevision as the company met both subscriber and operating forecasts.
(Reporting by Yinka Adegoke; editing by Jeffrey Benkoe, Derek Caney, Tim Dobbyn)