Spinoff Odds & Ends: MSG, CRC update and catching up on some old news

It’s been a little over 10 months since the last Odds & Ends so the time is right to bring this fan favorite back.

1. Yet Another Value Blog recently posted a lengthy, in depth series analyzing the media industry. The most recent edition – another great read – is focused on sports rights and sports investing. The emphasis is on MSG recent spinoffs Madison Square Garden Sports (MSGS), the owner of the Knicks and Rangers, and Madison Square Garden Entertainment (MSGE), the owner of Madison Square Garden and other venues. I’ve been a fan of his writing for awhile and one of the consistent themes throughout was his bullishness on live sports and sports teams. Literally every month there is a section dedicated to that idea. That is why the most interesting part of this most recent piece to me is the shift in thinking on the sector and a feeling of uneasiness about the future. Worth a read.

2. A quick update on California Resources Corporation (CRC) and the Chapter 11 watch from last week. The date to watch is now July 7th after the company successfully extended the forbearance agreement with its lenders another week. Clearly the company is in close talks with its lenders…lets see where this ends up.

3. During our hiatus there was a lot of spinoff news that we missed including quite a number of cancelled spins. Here is a non-exhaustive list:

  1. Eaton (ETN) sold its lighting business to Signify NV (SFFYF) for $1.4B. The transaction closed in early March. Eaton had initially intended to spinoff its lighting business, but after a more comprehensive review it determined that a sale was better. Signify (initially Philips Lighting) was itself a 2016 spinoff.
  2. AECOM (ACM) sold its management services business to private equity firms Lindsay Goldberg and American Securities for $2.4B last October. The company had announced the spinoff of the business just a few months earlier and as a standalone unit it would have been a top 20 government services provider.
  3. The Gap (GPS) scrapped its plans to spin off the Old Navy brand in January. Unfortunately, Old Navy’s fortunes have slipped and sales have declined, but this transaction never really made any sense. Sure, one company was growing faster at the time, but why spend hundreds of millions of dollars on a transaction that was expected to generate ‘dis-synergies’? Good to see common sense prevail.
  4. Mallinckrodt (MNK) delayed its planned generics spinoff due to ‘uncertainty’ surrounding opioid litigation and a choppy market. The company ended up settling the litigation for ~$1.6B and put its generics business into Chapter 11. The court supervised restructuring may put that business into a public trust that ‘would establish an abatement fund to offset the expense of helping to combat opioid addiction and providing support to communities impacted by opioid abuse’. The company has seen its market cap evaporate and still needs solve its crushing debt load.

Disclosure: Author holds no position in any stock mentioned.