Madison Square Garden Sports Corp. (NYSE: MSGS) experienced a notable premarket surge of about 10% on Wednesday after the company disclosed that it is evaluating a potential split that would create two separate publicly traded companies for its professional sports franchises.
The contemplated transaction is structured as a tax-free spin-off in which 100% of the common stock of the new public entity would be distributed to existing MSG Sports shareholders on a pro-rata basis. Company statements indicate the move is intended to make each franchise's assets and future prospects more readily assessable to investors and to provide the two resulting companies with greater strategic and financial flexibility.
In a prepared comment, Jim Dolan, Executive Chairman and Chief Executive Officer, said the company is "exploring the opportunity to further create value for our shareholders by separating our two professional sports franchises into distinct companies." He described both teams as "premier" in their leagues with "storied histories and large and passionate fan bases," and added that the proposed transaction could give each business "enhanced strategic flexibility, its own defined business focus, and clear characteristics for investors."
The separation, as described by the company, would allocate assets so that the Knicks-focused entity would hold the NBA franchise and its G League affiliate, the Westchester Knicks. The Rangers-focused company would include the NHL "Original Six" franchise, which the company noted is marking its 100th anniversary, plus its AHL affiliate, the Hartford Wolf Pack.
Madison Square Garden Sports has not set a timeline for the potential separation. The announcement makes clear the proposal remains conditional on a number of matters, including obtaining the necessary approvals from the relevant sports leagues, receiving a favorable tax opinion from counsel, and securing approval from the company's board of directors.
The near-term market reaction was immediate, with shares moving higher ahead of the trading session following the disclosure. Beyond the market response, the company framed the potential transaction as a way to sharpen the investment profiles of each franchise by giving them distinct corporate structures and management focus.
What remains open: the precise timing and whether the company will proceed depend on fulfillment of the stated conditions and any additional internal decisions by the board and advisers.