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ITT sells out Garden stake

ITT Corp. is to sell its one-half share in Madison Square Garden to its partner Cablevision Systems Corp. for $650 million, giving the hotel conglomerate a $150 million profit on its 18-month investment.

The deal also gives Cablevision, the nation’s sixth-biggest cabler, outright control of the arena, the New York Knicks basketball and Rangers hockey pro sports teams and the MSG cable network.

The sale is ITT’s first step toward exiting the entertainment business, a move it was prompted to make under pressure from a hostile $6.5 billion takeover bid launched by Hilton Hotels Corp. in late January.

ITT still has to sell its 50% stake in WBIS+, the Gotham TV station it bought with Dow Jones & Co. for $207 million last year. An ITT spokesman declined to comment on whether the company was actively seeking buyers for its interest in the station but it conceded it was not a core asset.

A good deal in hindsight

ITT made out surprisingly well in Thursday’s deal, which valued the Garden at $1.53 billion (with the Garden’s debt included), almost $500 million more than Cablevision and ITT paid to buy the Garden from Viacom Inc. in August 1994. The two companies were strongly criticized for overpaying at that time.

But the higher price reflects the dramatic improvement in the Garden’s performance in the past two years. Its annual cash flow rocketed from $20 million in 1994 to $92 million last year, an ITT spokesman said.

ITT’s eventual sale profit could be even higher, because it is selling the bulk of its holding immediately for $500 million and keeping 11.5% for up to three years.

Cablevision has the right to buy the outstanding 11.5% stake at the end of that time for $150 million or the “fair market value” if that is higher, an ITT spokesman said.

“We feel we have the best of both worlds. We immediately realize $500 million in cash, plus we are retaining the upside potential” in the remaining interest, the spokesman added.

In addition, if Cablevision sells any of its Garden interest to another party at a higher price, ITT will share in Cablevision’s profit.

Cablevision chairman Chuck Dolan and his son James, the company’s CEO, said in a press release they are getting the $500 million from “a major New York financial institution under a stand-alone MSG credit facility.” A spokesman for Cablevision declined further comment. ITT stock rose 50¢, to close at $57.50 Thursday, while Cablevision stock was unchanged at $33.62.

Cablevision is laboring under a debt load of about $5 billion. Two weeks ago, Cablevision executives said they’re exploring the sale of cable systems reaching about 475,000 subscribers, which represents just more than 15% of the company’s 2.8-million subscriber base.

The systems up for sale, which are outside Cablevision’s three most lucrative clusters in New York, Cleveland and Boston, could fetch as much as $1 billion and would help finance the Garden deal.

Sporting proposition

While ITT won’t talk about its plans for WBIS+, the company moved to protect the value of its interest in the station, which broadcasts sports and business programming. ITT is understood to have signed a sublicensing deal with the Garden to ensure WBIS+ has broadcast rights to select games played by the Garden’s sports teams and the Yankees baseball team. MSG has a long-term deal to broadcast the Yankees as well as its own sports teams.

Reports had surfaced over the past month that a number of media companies were interested in buying ITT’s stake in the Garden, among them Rupert Murdoch’s News Corp., Disney/ABC and Westinghouse/CBS. But Cablevision had a first right to buy ITT’s interest in the Garden.

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