The Madison Square Garden Company surprised many on Monday when it announced — besides exploring a potential breakup of itself — that it was adding two financiers to its board, one being the activist investor Nelson Peltz.
Unusually, it was not Mr. Peltz, the veteran of several prominent board battles, who pushed for a director position, according to people briefed on the matter. Mr. Peltz’s firm, Trian Fund Management, did not own any shares of Madison Square Garden as of Monday’s announcement.
Instead, the choice of the board members came about after another hedge fund disclosed in late August that it had purchased a 6.7 percent stake in M.S.G. Though that firm, JAT Capital Management, had never led an activist campaign before and didn’t publicly share its goals, the company worried that its newest investor would eventually seek out at least one seat on the board, one of the people briefed on the matter said.
It isn’t entirely clear how far an activist investor could have forced through change at the company, given the nearly 69 percent voting stake that the controlling Dolan family owns.
Still, the sports team and event venue operator elected to take matters into its own hands and turned to a pair of friendly faces to join its board. Mr. Peltz has known the company’s executive chairman, James Dolan, for some time and also happens to be a big sports fan.
Scott M. Sperling, the co-president of private equity firm THL Partners, has also known Mr. Dolan for years and is known as a longtime investor in media companies.
At the same time, M.S.G. had been considering a plan to again reshape its operations, in a way that shareholders would probably like. The company is favoring splitting itself up into two public companies: one that would own the New York Knicks, the New York Rangers and the MSG sports TV network, and another that would essentially hold the company’s event venues and booking businesses.
The process, which began in July, was aimed at better showcasing the value of the company’s operations, particularly on the sports side. The sale of the Los Angeles Clippers basketball team to Steven Ballmer for $2 billion highlighted for many the rising value of professional sports clubs, and was one of several considerations for pushing for a corporate breakup, one of the people briefed on the matter said.
Should M.S.G. follow through on the split, the sports company is likely to be seen as a producer of huge cash flow that could potentially support attractive dividend payouts. And the events business, while requiring not-insignificant investments in its operations, appears poised to post attractive growth rates.
Shares of M.S.G. were up 10.4 percent Tuesday afternoon, valuing the company at more than $5 billion.
JAT, which now owns a roughly 9 percent stake, certainly seemed pleased with the moves. In a public statement on Monday, the hedge fund said: “We are very pleased that M.S.G.’s board of directors and management have committed to pursue a plan to enhance value for all M.S.G. shareholders through the combination of a share repurchase program and contemplated business spin-off. We also commend M.S.G. for adding two new independent directors to its board, Messrs. Peltz and Sperling, who we believe will provide enhanced corporate governance and consideration of Class A shareholders’ interests as business decisions are made. We look forward to the full and timely implementation of these plans.”
Madison Square Garden Company to Explore Split
A breakup would separate the New York Knicks and Rangers professional sports teams from the company’s live entertainment business.