MSG Entertainment To Spin-Off Its Live Entertainment & MSG Network Businesses

Deal Overview

On October 26, 2022, Madison Square Garden

MSG
Entertainment Corp (NYSE: MSGE, $45.50, Market Capitalization: $1.6 billion) announced that it has confidentially submitted an initial Form 10 Registration Statement with the U.S. Securities and Exchange Commission (“SEC”) for the proposed spin-off of its traditional live entertainment and MSG Networks businesses. In the first step of the transaction, record holders of MSGE Class A and Class B common stock would receive a pro-rata distribution expected to be equivalent, in aggregate, to an approximately two-thirds economic interest in the live entertainment and media company, which will be named Madison Square Garden Entertainment Corp (SpinCo). The remaining approximately one-third of economic interest in SpinCo would be retained by the current parent company, which will be renamed MSG Sphere Corp post-separation. The retained shares would then be available in a tax-free exchange offer for the common stock of MSG Sphere Corp. to raise capital for general corporate purposes and can be utilized in a follow-on pro-rata spin-off to shareholders of MSG Sphere Corp.

Earlier on 8/18, MSGE had announced that its Board of Directors had authorized the Company’s management to explore a potential spin-off of its live entertainment and MSG Network businesses into a separately traded public company. As previously announced, the proposed separation would be structured as a tax-free spin-off to all MSGE shareholders. However, the completion of the transaction remains subject to various conditions, including the effectiveness of the Form 10 Registration Statement, certain league approvals, receipt of a tax opinion from counsel, and final Board approval.

On 11/4, MSGE announced that it would release its 1Q23 results and will host a conference call to discuss the 1Q23 results on Wednesday, November 9, 2022, at 10:00 a.m. Eastern Time.

Post-spin-off , Madison Square Garden Entertainment Corp. (SpinCo) is expected to include:

• A diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre;

• The Company’s entertainment and sports bookings business, which showcases a broad array of compelling concerts, family shows, and special events, as well as a diverse mix of sporting events, for millions of guests annually;

• The Radio City Rockettes and the Christmas Spectacular production, which has been a holiday tradition for 88 years;

• Valuable long-term Arena License Agreements with the New York Knicks and New York Rangers, both of which play their home games exclusively at Madison Square Garden; and

• MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG Sportsnet (formerly MSG+), as well as a companion streaming service, MSG GO, and features exclusive live local games of 5 NBA and NHL sports franchises.

Post-spin-off , MSG Sphere Corp. (Parent Stub) is expected to include:

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• MSG Sphere – state-of-the-art venues that will combine cutting-edge technology with multi-sensory storytelling to deliver immersive experiences on an unparalleled scale. The first MSG Sphere is currently under construction in Las Vegas and is expected to open in 2H23

• Majority interest in Tao Group Hospitality, a global entertainment dining and nightlife provider with over 70 branded locations in more than 20 markets across five continents;

• Approximately one-third of economic interest in the live entertainment and media company, along with the majority of the Company’s cash on hand.

Deal Rationale

MSG Entertainment is a global leader in live entertainment, and the Company possesses a collection of unique, world-class entertainment assets that investors currently undervalue. Hence the proposed spin-off is aimed to bridge this valuation mismatch and create shareholder value for MSGE shareholders over the long term. It is worth noting MSG Entertainment was spun-off tax-free from the Madison Square Garden Company on April 17, 2020. The proposed separation into two companies would enable shareholders to evaluate each Company’s assets and future potential.

Similarly, both companies, on a standalone basis, would be able to pursue their own distinct business strategy and capital allocation policy. MSG Entertainment has a growing portfolio of assets, including state-of-the-art music and entertainment focused venues – MSG Sphere and Tao Hospitality Group, two businesses with global brands and significant long-term growth opportunities. The first MSG Sphere is currently under construction in Las Vegas and is expected to open in the second half of calendar year 2023. Furthermore, MSG Entertainment (to be renamed as MSG Sphere) will hold an approximately one-third economic interest in the live entertainment and media company, which would provide an opportunity to raise capital in the future.

The live entertainment and media company (to be renamed as MSG Entertainment), with its valuable portfolio assets such as Madison Square Garden, the Christmas Spectacular production, and MSG Networks, is expected to generate substantial free cash flow and benefit from the attractive growth profile of the live entertainment business.

Company Description

Madison Square Garden Entertainment Corp (Parent, to be renamed as MSG Sphere Corp)

Madison Square Garden Entertainment Corp. (MSGE) is a provider of live entertainment consisting of venues, marquee entertainment brands, regional sports and entertainment networks, dining and nightlife offerings, and music festivals. The Company was spun-off from The Madison Square Garden Company on April 17, 2020. The Company’s segments include Entertainment, MSG Networks, and Tao Group Hospitality. The Entertainment segment comprises its portfolio of venues, such as Madison Square Garden, Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre. MSG Entertainment is also building a new state-of-the-art venue in Las Vegas, MSG Sphere at The Venetian. In addition, the Company features the original production – the Christmas Spectacular Starring the Radio City Rockettes – and, through Boston Calling Events, produces the Boston Calling Music Festival. The MSG Networks segment comprises the Company’s regional sports and entertainment networks, MSG Network and MSG+, a companion streaming application, MSG GO, and other digital properties. The Company’s two regional sports and entertainment networks, MSG Network and MSG Sportsnet deliver a wide range of live sports content and other programming. The Tao Group Hospitality segment features its controlling interest in Tao Group Hospitality, a hospitality group with entertainment, dining, and nightlife brands, including Tao, Marquee, Lavo, Beauty & Essex, Cathedrale, Hakkasan, and Omnia. The Company reported revenue of $1.7 billion in the year ended June 30, 2022. After the spin-off , the RemainCo will be renamed MSG Sphere Corp., including MSG Sphere and a majority stake in Tao Group Hospitality. It will also have approximately one-third of economic interest in the live entertainment and media company (Spin-Off )

Live Entertainment and Media Company (Spin-Off , to be renamed as Madison Square Garden Entertainment Corp.)

The Live Entertainment and Media Company (Spin-Off ) would include a diverse collection of venues: Madison Square Garden, The Hulu Theater at Madison Square Garden, Radio City Music Hall, the Beacon Theatre, and The Chicago Theatre, along with the firm’s entertainment and sports bookings business and long-term arena license agreements with the New York Knicks and New York Rangers. It will also include the Radio City Rockettes, the Christmas Spectacular production, and MSG Networks, which owns two regional sports and entertainment networks, MSG Network and MSG+, and a companion streaming app, MSG GO. The Company’s two regional sports and entertainment networks, MSG Network and MSG Sportsnet deliver a wide range of live sports content and other programming.