MSG Entertainment Inks Deal To Buy MSG Networks; Shares Tank 10%

Shares of Madison Square Garden Entertainment Corp. plunged 9.9% after the entertainment company agreed to snap up the media company, MSG Networks Inc. in an all-stock deal at a fixed exchange ratio. MSG Networks declined 7.6% on March 26 to close at $16.06.

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Through this acquisition, MSG Entertainment (MSGE) expects more emerging revenue opportunities associated with the potential expansion of legalized sports gaming in its market. The combined entity’s media, digital and venue assets are likely to create a powerful platform for potential sports gaming partners, which is anticipated to generate significant incremental revenue in the years ahead, the company said.

Per the terms of the deal, which is likely to be tax-free for both companies, shareholders of MSG Networks (MSGN) will receive 0.172 shares of MSG Entertainment common stock for each share held. The exchange ratio is about 4% above the ratio of the closing prices of the two companies on March 10, 2021.

The transaction, which awaits both companies’ shareholder approval, is likely to close in the third quarter of this year. (See MSG Entertainment stock analysis on TipRanks)

MSG Networks CEO Andrea Greenberg said, “We anticipate significant benefits from rejoining MSG Entertainment, including creating a combined company with greater diversification and resources. This would, in turn, help drive new innovative opportunities across both the entertainment and media businesses, ultimately creating significant value for our collective shareholders.”

Following the deal announcement, Oppenheimer analyst Ian Zaffino maintained a Buy rating and a price target of $115 (35.8% upside potential) on the stock.

Zaffino said, “While the deal provides access to much-needed cash flow, and has modest tax benefits and cost synergies, we believe other funding alternatives could have been pursued.”

Wall Street analysts are cautiously optimistic about the stock’s outlook. The Moderate Buy consensus rating breaks down into 3 Buy ratings versus 2 Hold ratings. The average analyst price target stands at $109 and implies upside potential of 28.7% to current levels over the next 12 months. That’s after shares jumped 23.6% over the past six months.