Following the Distribution, our intercompany advances to a subsidiary of Cablevision (in an aggregate amount of $190 million) will remain outstanding. Prior to the Distribution date, the terms of these advances will be changed to provide for a maturity date of no later than June 30, 2010 (with prepayment at Cablevision's option) and for the payment of cash interest at a fixed rate equal to the prime rate on the date the changes to the terms are made.
There is an overlap between the senior management of the Company and Cablevision. James L. Dolan serves as the Executive Chairman of the Company and as the President and Chief Executive Officer and as a director of Cablevision. Hank J. Ratner serves as the President and Chief Executive Officer of the Company and as Vice Chairman of Cablevision. In addition, immediately following the Distribution, eight of the members of our Board of Directors will also be directors of Cablevision, and several of our directors will continue to serve as officers and/or employees of Cablevision concurrently with their service on our Board of Directors.
Please see our Information Statement filed with the SEC for a discussion of the policy that will be in place for dealing with potential conflicts of interest that may arise from our ongoing relationship with Cablevision.
- to increase the aggregate value of the stock of Cablevision and the Company above the value that the stock of Cablevision would have had if it had continued to represent an interest in both the businesses of Cablevision and the Company, so that following the Distribution each company can use its stock to pursue and achieve strategic objectives including evaluating and effectuating acquisitions, raising capital and increasing the long-term attractiveness of equity compensation programs in a significantly more efficient and effective manner with significantly less dilution to existing stockholders;
- to improve Cablevision's access to debt markets and lower its overall financing costs; and
- to provide the Company with increased flexibility to fully pursue its business plan including capital expenditures and acquisitions that would be more difficult to consider or effectuate within Cablevision in the absence of the Distribution. This flexibility reflects the Company's belief that investors in a company with the mix of assets the Company will own following the Distribution will be more receptive to strategic initiatives the Company may pursue, such as the major renovation of The Garden and the acquisition or construction of additional theater venues. Certain investors in Cablevision have historically expressed concern for Cablevision's funding of strategic investments by its The Madison Square Garden Company segment.
Cablevision's board of directors also considered several factors that might have a negative effect on Cablevision as a result of the Distribution. Cablevision's board of directors considered that the Distribution would result in substantial reductions to the restricted payments baskets under various debt instruments of Cablevision and its subsidiary, CSC Holdings. Moreover, the Distribution would separate from Cablevision the businesses of the Company, which represent significant value, in a transaction that produces no direct economic consideration for Cablevision. Because the Company will no longer be a wholly-owned subsidiary of Cablevision, the Distribution also will affect the terms of, or limit the ability of Cablevision to pursue, cross-company business transactions and initiatives with The Madison Square Garden Company. Finally, following the Distribution, Cablevision and its remaining businesses will need to absorb corporate and administrative costs previously allocated to its The Madison Square Garden Company segment.
Cablevision's board of directors considered certain aspects of the Distribution that may be adverse to the Company. The Company's common stock may come under initial selling pressure as certain Cablevision stockholders sell their shares in the Company because they are not interested in holding an investment in the Company's businesses. Moreover, certain factors such as a lack of comparable public companies may limit investors' ability to appropriately value the Company's common stock. Because the Company will no longer be a wholly-owned subsidiary of Cablevision, the Distribution also will limit the ability of the Company to pursue cross-company business transactions and initiatives with other businesses of Cablevision. Finally, as a result of the Distribution, the Company will bear significant incremental costs associated with being a publicly held company.
In determining to move ahead with the Distribution, Cablevision has noted that certain aspects of its business and the business of the Company have changed since Cablevision's initial acquisition of The Madison Square Garden Company in 1995. When the initial acquisition was completed, The Madison Square Garden Company had certain synergies with Cablevision including its ownership of two important sports franchises, a major arena and a significant regional sports programming business, all in Cablevision's most important market the New York metropolitan area. Over time, the business of the Company has expanded beyond its scope at the time of the initial acquisition to include multiple entertainment venues and expanded content. Also, at the time of the initial investment, Cablevision owned a portfolio of regional sports programming businesses in various major cities. Through a series of transactions all of those regional sports programming businesses other than the MSG Networks have been divested. As a result, the synergies associated with owning the MSG Networks have diminished. Finally, the planned renovation of The Garden and other possible growth initiatives such as the acquisition or construction of additional venues, will create significant funding requirements at the Company which are of a nature that did not exist at the time Cablevision made its initial investment in The Madison Square Garden Company.
Wells Fargo Shareowner Services, 161 North Concord Exchange, South St. Paul, Minnesota 55075-1139. Telephone: 1-800-401-1957.
Before the Distribution, if you have questions relating to the Distribution, you should contact: Cablevision Systems Corporation Investor Relations Dept., 1111 Stewart Ave., Bethpage, NY 11714-3581. Telephone: 1-516-803-2300.
After the Distribution, if you have questions relating to The Madison Square Garden Company, you should contact: The Madison Square Garden Company Investor Relations Dept., Two Penn Plaza, New York, NY 10121. Telephone: 1-212-465-6000.
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