Cablevision to spin off Madison Square Garden

Cablevision Systems Corp. said Thursday that its board has approved a plan to spin off as a separate company its Madison Square Garden business, owner of the New York Knicks, Rangers and the famed sports arena where they play.

In a widely anticipated move, the Bethpage, N.Y.-based company said the unit will be spun off to existing shareholders by the end of the year. The Dolan family, who controls Cablevision through a special class of shares, will retain control of the new company.

Investors liked the move, driving up shares of Cablevision $1.66, or 8.8 percent, to $20.59.

The diversified company that owns cable systems and channels and the newspaper Newsday in addition to its sports and entertainmnet properties also reported an 8 percent drop in second-quarter earnings despite climbing revenue.

Cablevision said it earned $87 million, or 29 cents per share, in the most recent quarter, compared with $94.7 million, or 32 cents per share a year ago. Revenue rose 9.8 percent to $1.88 billion.

Results were roughly in line with analysts' expectations, according to Thomson Reuters.

Cablevision said the separation of its Madison Square Garden operations is expected to make it easier for investors because each company will now have distinct businesses. Without a spin-off or sale, cable investors buying shares of Cablevision have little choice but to contend with its entertainment businesses.

Analyst Craig Moffett of Sanford Bernstein said the spin-off boosts the free cash flow of Cablevision by shifting the cost of renovating the Garden, estimated at more than $500 million over the next few years, to the new company.

Moffett had speculated in a note before a conference call that Cablevision could also shift some debt to the new company, but management said during the call that the new company won't have additional debt put on it at this time.

Standard & Poor's analyst Tuna Amobi noted the spin off is "ill-timed given lackluster results" at the unit and high capital expenditure needs.

Cablevision said James Dolan, its chief executive, also will take on the role of executive chairman of the spun-off Madison Square Garden group. Hank Ratner, Cablevision's vice chairman, will add the titles of president and CEO of the new company.

Cablevision said for now it is not considering a sale of Madison Square Garden or any of its businesses, as well as any other operations of the cable operator.

In its earnings report, the company said the Madison Square Garden unit had an operating loss of $8.4 million as revenue fell by 1 percent to $207.3 million. Lower play-off revenues, fewer concerts and other entertainment events, coupled with higher severance costs and salary increases led to the loss.

The group also includes Radio City Music Hall as well as its MSG, MSG Plus and Fuse television channels. MSG and MSG Plus air sports and entertainment programming, such as the Knicks' basketball and Rangers' hockey games, while Fuse is a music television channel aimed at the youth.

Cablevision said it added 102,800 lines of video, Internet and voice services in the quarter from the prior quarter, and up 383,200 from a year ago. The number of basic video subscribers fell, however, by 8,700 quarter-over-quarter and 38,000 from a year ago. But more customers signed up for digital cable TV, high-speed Internet and phone services.

The cable TV, Internet and phone operations saw revenue rise by 5 percent to $1.36 billion and operating income was up 15 percent to $327.4 million. The average monthly revenue received from subscribers rose 5.6 percent to $139.69, helped in part by price increases.

The company ended the quarter with 3.32 million subscribers in the New York metro area, down 17,000 from about 3.34 million a year ago.

Its Rainbow unit, comprising cable TV channels AMC, IFC and Sundance as well as other programming, saw revenue rise by 5.3 percent to $252.3 million. Operating income was up 61 percent to $49 million. A full-quarter of revenue from Sundance was included in second quarter results compared to two weeks last year. Sundance was acquired in June 2008.

Cablevision's Newsday unit had revenue of $88.7 million and an operating loss of $2.6 million. It bought the daily in July 2008 and thus there's no year-ago comparison.