MSG to Complete Entertainment Spin-Off on April 17; Maintain BUY, $346 Fair Value Estimate

• On March 31, after the market close, The Madison Square Garden Co. (NYSE: MSG) announced that the company’s Board of Directors approved the spin-off of the Entertainment business from the Sports business.
• Shares of MSG Entertainment will be distributed to MSG shareholders of record as of April 13, 2020, on April 17, 2020, after the market close. Shareholders of record will receive one share of MSG Entertainment for each share of MSG owned.
• MSG Entertainment is expected to trade on the NYSE under the symbol “MSGE”; MSG will change its corporate moniker to Madison Square Garden Sports Corp. and trade on the NYSE under the symbol “MSGS”. Regular way trading is expected to begin on April 20, 2020.
• Beginning on or about April 9, 2020, there is expected to be a when-issued market for the Entertainment business under the symbol “MSG WI”.
• Additionally, the company provided an update on its Las Vegas Sphere project. Given the current COVID-19 pandemic, construction has been temporarily suspended, as such it is now expected that the state-of-the-art venue is not expected to open in 2021 as was previously anticipated.
• For MSG Entertainment, we moved our forecasted earnings to 2021 as we assume a return to business operations at some point in 2020 with a residual lag in business resulting in a revenue decrease of 25% versus 2019. We now model a 10% EBITDA margin and value the operating business at 7.0x, resulting in a value of $23 per share.
• We have adjusted the value of the owned venues to reflect the previously announced $400 million purchase price of The Forum, which results in the value of the owned sites of $67 per share, resulting in a fair value of the Entertainment business of $140 per share.
• We maintain our fair value estimate of $206 per share for the post-spin Sports company, which is based on the published Forbes valuations for the NY Knicks and NY Rangers, adjusted for arena value, and incorporates modest growth assumptions. In our opinion, upon resumption of professional sports leagues the impact on premier team valuations should be minimal and short-lived.
• On a sum-of-the-parts basis, shares of The Madison Square Garden Co. are fairly valued at $346 per share. We maintain our BUY rating on MSG.
• As a point of reference on yesterday’s closing price of $211.41, if you were to value the sports teams at half their current stated values, less an adjustment for the arena value, and gave zero value to the operating businesses, the fair value estimate would approximate $212 per share.
• While we acknowledge the risk to near-term operating earnings at the entertainment business from the COVID-19 virus situation, we think that most of MSG’s valuation being derived from its owned assets (both arenas and teams) should provide a degree of stability.
• For more details, please refer to The Spin Off Report dated February 13, 2019, and UPDATEs dated August 20, 2019, November 8, 2019, December 3, 2019, March 6, 2020, and March 25, 2020.

Carrier Global and Otis Begin When-Issued Trading; Revising FVE for UTC and CARR; Rate UTX at BUY

• Shares of Carrier Global (CARR-WI) and Otis Worldwide (OTIS-WI) are trading on a when-issued basis ahead of their separation from United Technologies Corp.(NYSE: UTX) on April 3, 2020. As background, each UTX shareowner will receive one share of CARR and one-half share of OTIS for every share of UTX common stock held on the record date (March 19, 2020). Immediately following the separations, UTX will merge with The Raytheon Company (NYSE: RTN).
• While the global COVID-19 (coronavirus) outbreak has clearly impacted sentiment around air travel and sector valuations, shares of UTX and The Raytheon Company (NYSE: RTN) have been disproportionately affected, having declined 36% and 37% respectively year-to-date, versus 22% for the S&P 500 over the same period. With the airline industry poised to benefit from a $58 billion aid package, shares have begun to recover from recent lows.
• We lower our applied multiple assumption for CARR to 8x 2021E EBITDA (from 11x) in an attempt to more accurately reflect the current pressure on the HVAC industry, and the increased potential for future revenue and earnings risks.
• We value UTC (the aerospace business, to be merged with RTN) at $84 per share, which implies 29% upside from current when-issued trading levels. Following the merger (which received DoJ approval last week), the aerospace business should benefit from a stronger balance sheet to further support product development and reduce costs relative to other aircraft manufacturers.
• Post-spin, we value CARR at $25 per share (previously $40 per share). Our fair value estimate for OTIS remains unchanged at $44 per share. We note that continued market weakness could compress sector valuations, and in turn, our fair value estimates further going forward.
• We continue to rate shares of UTX at BUY. We see the separations as unlocking meaningful value. In particular, the market appears to be discounting the value of Carrier amidst an HVAC sector poised for further industry consolidation.
• For more details, please refer to the United Technologies Corp. Spin-Off Report dated March 10, 2020 and Update dated March 13, 2020.

Please see the attached for Hidden Opportunities’s commentary surrounding the COVID-19 Outbreak.

Please see the attached for The Spin-Off Report’s commentary surrounding the COVID-19 Outbreak. 

GLIBA is currently trading at a ~25% discount to NAV; our incrementally tempered forecasts for GCI, CHTR and TREE suggest the risk/reward has become increasingly compelling

• Currently, shares of GLIBA trade at a ~25% discount to the market value of its publicly traded holdings, the purchase price of its operating asset, GCI Communications, and net debt.
• Moreover, we see in excess of 40% of potential upside to fair value based on our estimated value of GLIBA’s holdings, which have been incrementally tempered to reflect potential near-term headwinds (i.e. COVID-19/recession).
• The most impactful component, in terms of GLIBA’s value, is our fair value estimate of CHTR, which has been reduced to $465 per share (from ~$470 and compared to the consensus target of $546) on 2021E EBITDA of $18 billion (versus consensus of $19.4 billion). While our outlook is well-below consensus in an effort to discount the potential near-term impacts of COVID-19 on the broader economy we remain constructive on the medium-term outlook amid a mix shift toward higher-margin broadband subs (as well as improved FCF generation).
• Our fair value estimate for TREE is also decreased to $240 per share (from $327 and compared to the consensus target of $359) based on 2021E EBITDA of $228.5 million (versus consensus of $281 million). Again, while our estimates are well-below guidance/consensus we think the current interest rate environment could ultimately be a tailwind to TREE’s mortgage & refinance businesses in late-2020/2021.
• The fair value estimate of GLIBA’s operating segment, GCI, is reduced to ~$20 (from $21) share based on 2021E EBITDA of $254.5 million. [Note: our GCI valuation represents a ~20% discount to the price it was purchased for in April 2017 and we continue to assign no value to the company’s ownership of Evite.]
• We continue to see an opportunity to narrow GLIBA’s discount to NAV via a range of potential transactions with LBRDK/CHTR. In that context, we view the merger between DirecTV and Liberty Entertainment in 2009 as offering a relevant roadmap for an all-stock or Reverse Morris Trust transaction’s potential to unlock value (at both GLIBA & LBRDK).  Longer-term, we think incremental upside optionality remains from further appreciation in the value of GLIBA’s holdings, particularly CHTR, which itself has been reported to be a potential acquisition target.

UHAL is the dominant player in a somewhat counter-cyclical & resilient industry and we think recent insider purchases highlight an increasingly attractive valuation

• While we have tempered our F2020/F2021 forecasts to reflect the likely sharp near-term impact of the COVID-19 outbreak on economic activity we would note that UHAL’s do-it-yourself (DIY) moving and storage services have historically proven to be somewhat counter-cyclical as well as resilient, as evidenced by its performance during 2008-2009.
• Moreover, it remains our contention that UHAL has durable competitive advantages in what we discern are the main factors of industry differentiation, namely the proximity of rental locations, and the availability of equipment and price.  In fact, we think a period of economic stress would likely serve to further extend its leadership position in the industry.  (As well, to the extent that a period of economic softness could prompt management to temper its aggressive capacity expansion plans and focus on asset utilization, particularly on the self-storage side of the business, we think it would be well received by the investment community.)
• To that end, we think the stock’s 26% year to date decline appears overdone, which is a contention seemingly supported by the recent uptick in insider buying, most notably by UHAL’s  CEO, Mr. Shoen, who has purchased more than $5 million worth of stock since the beginning of March (at prices of ~$241-$311 per share).
• As such, it remains our view that at ~5.5x F2021E EV/EBITDA, UHAL is undervalued relative to the sum value of its parts, which includes a leading equipment rental business as well as a high-margin/low incremental cap-ex self-storage business.  Notably, our $382 fair value estimate reflects an ~8x multiple on F2021 EBITDA and implies nearly 40% of incremental upside.

MSG to Sell The Forum for $400 Million to Steve Ballmer; Maintain BUY, Adjust Fair Value Estimate to $346 per share (previously $355)

• On March 24, after the market close, The Madison Square Garden Co. (NYSE: MSG) filed an 8-K disclosing that the company has agreed to sell The Forum to an affiliate of Steve Ballmer for $400 million in cash. The sale is expected to be completed in 2Q 2020.
• The sale puts an end to a potentially messy and drawn out lawsuit that involved MSG and Mr. Ballmer, which centered around the L.A. Clippers, which Mr. Ballmer owns, building a new arena around the corner from The Forum, and a new football stadium being constructed next door.
• Considering the current non-operating environment for MSG’s sports, entertainment, and nightlife businesses we find it prudent to shift our valuation outlook for the operating businesses.
• For MSG Entertainment, we move our forecasted earnings to 2021 as we assume a return to business operations at some point in 2020 with a residual lag in business resulting in a revenue decrease of 25% versus 2019. We now model a 10% EBITDA margin (previously 11%) and value the operating business at 7.0x (previously 9.0x), resulting in a value of $23 per share (previously $45 per share).
• We adjust the value of the owned venues to reflect the $400 million purchase price of The Forum, which increases the value of the owned sites to $67 per share from $55 per share (we were valuing The Forum at $123.5 million). On a net basis, the fair value of the Entertainment business decreases to $140 per share from $151 per share.
• We maintain our fair value estimate of $206 per share for the post-spin Sports company, which is based on the published Forbes valuations for the NY Knicks and NY Rangers, adjusted for arena value, and incorporates modest growth assumptions. In our opinion, upon resumption of professional sports leagues the impact on premier team valuations should be minimal and short-lived.
• On a sum-of-the-parts basis, shares of The Madison Square Garden Co. are fairly valued at $346 per share (previously $357 per share). We maintain our BUY rating on MSG, and view the ~33% decline since February 19, 2020, (versus a ~28% decline in the S&P 500) as overdone.
• As a point of reference on yesterday’s closing price of $209.53, if you were to value the sports teams at half their current stated values, less an adjustment for the arena value, and gave zero value to the operating businesses, the fair value estimate would approximate $212 per share.
• While we acknowledge the risk to near-term operating earnings at the entertainment business from the COVID-19 virus situation, we think that most of MSG’s valuation being derived from its owned assets (both arenas and teams) should provide a degree of stability.
• For more details, please refer to The Spin Off Report dated February 13, 2019, and UPDATEs dated August 20, 2019, November 8, 2019, December 3, 2019, and March 6, 2020.

COVID-19 impact drives 1Q 2020 guidance reduction at GES (while guidance was maintained at Pursuit)

• At GES, despite performance being in-line with expectations during January and February recent COVID-19 related event postponements and cancellations result in a reduction to 1Q 2020 guidance; currently, segment sales are projected to be $275-$290 million (down from the previous guide of $335-$350 million and compared to $274.9 million in 1Q 2019) with adj. operating income of $5-$8 million (versus the previous guide of $23-$26 million and $1.7 million in 1Q 2019).
• VVI notes that, as of now, cancellations and postponements at GES have not extended past the month of June. In that context, the biggest drivers of the previously anticipated ~$100 million of positive “show rotation” in 2020 were CONEXPO (construction), which occurred this weekend in Las Vegas with seemingly minimal disruption, as well as the MINExpo (mining) and IMTS (manufacturing), which are both still scheduled for September 2020 (in Las Vegas and Chicago, respectively).
• At Pursuit, the company maintained its initial 1Q 2020 guidance in what is the seasonally slowest quarter.  That said, VVI notes it has received about $1 million of cancellations, which seemingly could rise as customer travel dates approach. (Notably, the peak season at Pursuit is typically June-September.)
• While VVI’s business has been resilient in the wake of other periods of disruption and we do not foresee any significant balance sheet issues (with leverage less than 2x) we think it prudent to take a cautious approach, in terms of our near-term expectations, particularly at GES where our 202oE EBITDA expectation is reduced to $76 million (from $113.5 million); as such, our fair value estimate is reduced to $64.50 per share  (from $74 per share) based on a 7.0x multiple on 2020E/2021E blended EBITDA of $74 million at GES (previously ~$94 million) and a 12x multiple on our 2021E EBITDA estimate of $95 million at Pursuit (previously $99 million) as well as projected net debt of ~$233.5 million.

UTX Announces Key Dates Associated with Spin-Offs of Carrier Global and Otis and Merger with RTN; Rate UTX at BUY with $139 FVE

• On March 11, 2020, United Technologies Corp. (NYSE: UTX) announced its Board of Directors approved the spin-offs of Carrier Global Corp. and Otis Worldwide Corp. and the merger of the aerospace business with Raytheon Technologies Inc. (NYSE: RTN). The spin-off is to be completed on April 3, 2020 to shareholders as of the record date of March 19, 2020. Each UTC shareowner will receive one share of CARR and one-half share of OTIS for every share of UTC common stock held on the record date. When-issued trading will begin on or around March 18, 2020 on the NYSE under the symbol “CARR-WI” for Carrier and “OTIS-WI” for Otis. Following the completion of the separations on April 3, 2020, CARR and OTIS will begin “regular way” trading on the NYSE.
• Considering the global COVID-19 (coronavirus) outbreak and its impact on sector valuations, we lower our applied EBITDA multiple assumptions for each company by two-turns in an attempt to more accurately reflect the current market volatility, and the increased potential for future revenue and earnings risks.
• Based on revised estimates of EBITDA, we now fairly value UTX at $139 per share on a pre-spin, sum-of-the-parts basis, including the company’s 57% ownership interest in Raytheon (previously $179 per share). Post-spin, we value CARR at $40 per share (previously $46 per share), OTIS at $44 per share (previously $59 per share), and post-merger RTN at $76 per share (previously $107 per share). We note that continued market weakness could compress sector valuations, and in turn, our fair value estimates further going forward.
• We rate shares of UTX at BUY. We see the separations as unlocking meaningful value. In particular, the market appears to be discounting the potential for Carrier to further portfolio restructuring, as well as the attractiveness of the post-spin asset amidst an HVAC sector poised for further industry consolidation.
• For more details, please refer to the United Technologies Corp. Spin-Off Report dated March 10, 2020.

MSG Files First Public Form 10, Announces Entertainment Business CEO; Maintain BUY, Increase Fair Value Estimate to $357 (previously $355)

• On March 6, before the market open, The Madison Square Garden Co. (NYSE: MSG) filed its first publicly available Form 10 with the SEC relating to the planned spin-off of its Entertainment business from the company’s Sports business.
• The Entertainment business will adopt the corporate moniker Madison Square Garden Entertainment Corp. and is expected to trade on the NYSE under the symbol “MSGE”. The parent company will be re-named Madison Square Garden Sports Corp. and will trade on the NYSE under the symbol “MSGS”.
• MSG announced that Andrew Lustgarten will be named President and CEO of MSGS following the separation. James Dolan will serve as CEO and President for the new Entertainment company.
• We update out valuation assumptions to reflect the disclosures in the Form 10 filing, which include pro forma revenue, expenses, and capital structure, and disclosures on the company’s arena license and sponsorship agency agreements, as well as update our valuation for the NY Knicks and NY Rangers given updated annual valuations released by Forbes magazine.
• We increase our base line revenue for MSGE to ~$1.0 billion based on pro-forma revenue (previously $819.9 million) and lower our EBITDA margin assumption to 11% (from 14.5%) to more accurately reflecting the stand-alone company costs MSGE will incur.
• We value MSGE on a sum-of-the-parts basis, assigning value to the owned arenas and applying a multiple to earnings from the company’s operating businesses, which include majority ownership in TAO Group and the sports, live booking, productions, and festivals businesses. Valuing the arenas at $1.3 billion and applying an unchanged 9.0x multiple to our revised EBITDA estimate of $121 million (previously $124.8 million), and accounting for $1.2 billion in pro-forma net cash, results in a market capitalization of $3.6 billion, or $151 per share assuming a one-for-one share distribution ratio (the actual share distribution ratio has yet to be set).
• Forbes recently updated its valuations for NBA and NHL franchises. We base our MSGS company valuation on the Forbes valuations, adjusted for the arena component, annual growth rate, and consider the historic premium paid in recent acquisitions for NBA and NHL teams. Based on modest growth versus historic levels, we value MSG Sports at $4.9 billion, or $206 per share. Notably we do not incorporate a takeout premium into our fair value for the teams, which could provide significant optionality to our fair value estimate.
• On a sum-of-the-parts basis, shares of The Madison Square Garden Co. are fairly valued at $357 per share (previously $355 per share). Considering the implied upside from the current share price, the near-term catalyst of the spin-off completion, and potential for a further value-added catalyst at the sports business (i.e. minority investment), we maintain our BUY rating on MSG.
• While we acknowledge the risk to near-term operating earnings at the entertainment business from the COVID-19 virus situation, we think that most of MSG’s valuation being derived from its owned assets (both arenas and teams) should provide a degree of stability.
• For more details, please refer to The Spin Off Report dated February 13, 2019, and UPDATEs dated August 20, 2019, November 8, 2019, and December 3, 2019.