Shares of MSG Sports (MSGS) were surging on Wednesday after the owner of the New York Knicks basketball team and Rangers hockey team said it was exploring spinning off the franchises into separate, publicly traded companies.
And it’s a move Ariel Investments has been waiting for.
Ariel, the storied value-investing firm, is the third-largest owner of MSGS stock. The spinoff “is a great idea,” Charlie Bobrinskoy, vice chairman and head of the investment group at Ariel, told Yahoo Finance in a video call.
“The stock has been trading at a huge discount to the value in a sale.”
Forbes pegged the Knicks’ value at $9.75 billion last year. The magazine estimated the Rangers could fetch $4 billion in a sale. That means the company’s current market value, at just over $8 billion, remains a significant discount to its potential total sale value.
The perception has been that Jim Dolan, the longtime colorful owner of the teams and executive chairman and CEO of the company, didn’t want to sell.
“It’s still a big discount, because [Dolan] hasn’t announced a sale, just this new structure,” Bobrinskoy said. “But this is a step in the right direction.”
As Bobrinskoy explained, the spinoff will be more tax-efficient than an outright sale, but it also means Dolan has to attest that he doesn’t intend to sell the teams for two years. If he does sell within that period, he’ll have to prove the negotiations didn’t pre-date the spinoff.
Ariel Investments owns about 720,000 shares of MSGS and is the largest shareholder in Dolan’s other corporate progeny, Sphere Entertainment (SPHR) and MSG Entertainment (MSGE).
“We’ve owned all these entities because we thought there was a Dolan discount,” Bobrinskoy said. “This has been the one that didn’t go anywhere for a long time.”