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MSG Could Test M&A Market

With renovations to its landmark arenas – The Los Angeles Forum and New York’s Madison Square Garden – winding down, Madison Square Garden Co. is poised to use its considerable future cash flow for acquisitions. But in a conference call with analysts Wednesday, new CEO Tad Smith was reluctant to talk about details.

Smith, who was named CEO in February, said that since he joined the company MSG has been conducting a strategic evaluation to determine where it should focus its efforts to drive growth. Smith said that as part of that ongoing evaluation, MSG believes in the “importance of owning content,” is “exploring ways to extend how our customers can consume our content,” including streaming, and also feels that its venues present opportunities for growth and will look to build on existing properties and possibly moving into new markets. But pressed for details later in the call, Smith declined to elaborate.

In a research note, Morgan Stanley media analyst Ben Swinburne estimated that MSG would generate between $200 million and $250 million in free cash flow in fiscal 2015.

“We remain bullish that over time MSG will utilize its excess financial capacity to create value, potentially including some combination of organic investments, external M&A, and dividends/buybacks,” Swinburne wrote.
Investors seemed pleased. MSG stock was up 3% ($1.90 per share) to $64.74 each in afternoon trading Wednesday.

For the quarter, overall revenue was up 10% to $371.7 million, fueled mainly by gains at its MSG Entertainment and MSG Sports units. Revenue at MSG Entertainment – which includes arenas like the LA Forum and Madison Square Garden – was up 62% in the period to $56.5 million. At MSG Sports, which houses professional sports teams the New York Knicks, the New York Rangers and the New York Liberty; revenue increased 11% to $156.8 million.

Revenue at its MSG Media division, which includes regional sports networks MSG Networks and MSG Plus, revenue was flat at $176.4 million. Affiliate revenue at the networks was up $6.4million but ad revenue fell $5.8 million in the quarter, primarily due to the Knicks absence from the NBA playoffs.