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Blue Harbour Says Madison Square Garden Worth $400 a Share

Bloomberg logoBloomberg 11/6/2019 Scott Deveau

(Bloomberg) -- Activist investor Blue Harbour Group is bullish on New York’s Madison Square Garden Co. as the iconic brand prepares to spin off its sports teams.

The owner of the New York Knicks and New York Rangers has other levers at its disposal to dramatically boost its share price, according to Blue Harbor Chief Executive Officer Clifton S. Robbins, whose firm owns a 4% stake in MSG.

“We think Madison Square Garden is on a path to create and unlock significant shareholder value,” Robbins said in an interview. “We think the shares are worth about $400 a share today.”

MSG’s shares were up 1.6% to $275.63 at 2:28 p.m. in New York trading Wednesday, giving the company a market value of $6.6 billion. The shares have been essentially flat over the past 12 months.

Blue Harbour has been advocating for MSG to explore ways to improve its share performance, including selling a stake in its pro-sports franchises before taking them public.

Blue Harbor estimates the Knicks and Rangers are worth as much as $7.2 billion alone, or about 10% higher than the market value of MSG as a whole.

Selling a stake in the sports franchises before or in conjunction with their IPO would allow MSG to ascribe a high multiple to the business before it goes public, Robbins said.

MSG, led by Executive Chairman and Chief Executive Officer Jim Dolan, is committed to completing a spinoff of the sports franchises in the first quarter of 2020, executives with the company said in August.

The Greenwich, Connecticut-based hedge fund also wants MSG to redevelop its real estate around the Madison Square Garden arena to capture more value.

Blue Harbour has held discussions with management about its views since disclosing its initial position in the company in the fourth quarter of 2018, Robbins said. Blue Harbour, as a friendly activist, doesn’t launch proxy contests and typically builds positions in companies where it believes it can work with management teams.

A representative for MSG wasn’t available for comment.

There are several positive catalysts ahead for MSG outside of its plans for its real estate and the sports franchises, said Todd Marcy, managing director at the fund. Sports is one of the last remaining businesses that requires live broadcasts, which is leading to an increased value in broadcasting rights, he said.

Five years ago, for example, the National Basketball Association renegotiated its broadcasting rights so the annual value of the deal rose from $930 million a year to $2.7 billion annually, he said.

There are also several new, deep-pocketed entrants including Amazon.com Inc. entering the space. Sponsorship opportunities and the legalization of sports betting are also key drivers of growth, Marcy said.

“With the Knicks and the Rangers, they obviously benefit from those drivers,” Marcy said. “But they’re also uniquely located in New York City in Manhattan, and that drives a premium valuation to them relative to other teams.”

Blue Harbor has had a strong year, with overall returns on its investments reaching nearly 27% through November 5.

(Updates with share price in paragraph four, updates with additional details in paragraph nine, updates comment line in paragraph 11)

To contact the reporter on this story: Scott Deveau in New York at sdeveau2@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, Matthew Monks

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©2019 Bloomberg L.P.

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