Billionaire James Dolan is merging the company that owns the Madison Square Garden arena with the cable network that broadcasts New York Knicks games to local fans — and investors are running for the exits.
Madison Square Garden Entertainment — which in addition to the Garden owns Radio City Music Hall and the Tao restaurant and nightclub chain — on Friday announced it will buy MSG Networks for about $900 million in stock.
Shares of the companies — both of which are controlled by Dolan, who also owns the Knicks and the New York Rangers — tanked on the news, with MSGE closing down 9.9 percent at $84.67, and MSGN tumbling 7.6 percent to $16.06.
That’s on top of steep drops since word of the deal was first reported on March 10. While MSGE’s takeout offer represents a 4-percent premium to MSG Network’s shares on that day, investors on Friday groused that their combined market values have already sunk by roughly $750 million.
Wall Street is afraid of the tie-up partly because MSG Entertainment, after losing more than $250 million in the pandemic, appears to be moving forward on a controversial plan to build its pricey, ball-shaped Sphere arenas across the country. To some, Friday’s deal looks like a signal that MSG Entertainment needs MSG Networks as a source of cash.
“The question for shareholders is if this is an indicator that there are financing challenges at MSGE,” one miffed shareholder told The Post, adding that during a Friday conference call, executives “didn’t address what the two businesses could do better together than what they can do separately.”
In a written statement, MSG Entertainment said the new company would be better positioned to latch on to the expansion of legalized sports gambling. MSG Networks owns two regional sports and entertainment channels as well as a streaming service in the New York area.
The new company also would enjoy tax efficiencies and “would have enhanced financial flexibility to fund current growth initiatives, including its planned state-of-the-art venue in Las Vegas, [the] MSG Sphere at the Venetian,” MSG Entertainment said.
Dolan wasn’t on Friday’s call, and company executives refused to answer several questions about MSGE development projects. That included whether the merger would accelerate the timing of the opening of the London Sphere. MSG’s Las Vegas Sphere is scheduled to open in 2023, the company said.
The merger likewise disappointed some MSGE shareholders as it changes the rationale for buying the stock.
“The thesis on MSGE is this is live entertainment — a reopening of the economy play,” the miffed shareholder griped. “Buying a cable network dilutes that story.”
In 2015, Madison Square Garden spun off its sports and entertainment businesses from its media business, making MSG Networks a stand-alone media company. Last year, Madison Square Garden spun off its MSG Entertainment from Madison Square Garden Sports, which owns the Knicks and the Rangers.
Officials at MSG Entertainment declined to comment further on Friday.