Viacom Inc. announced yesterday that it had agreed to sell its Madison Square Garden sports and entertainment empire to a partnership of the Cablevision Systems Corporation and the ITT Corporation, but many analysts said the purchase price of $1.075 billion in cash would far exceed the Garden's actual worth.
And so it may be months or even years before the long-term winners and losers can be identified in the battle for a package that includes the Madison Square Garden arena, the New York Knicks and New York Rangers, and the MSG Network. The Liberty Media Corporation, the other bidder, dropped out after declining to raise its $1 billion offer.
The only clear victor is Viacom and its chairman, Sumner M. Redstone, because financial analysts had generally placed the Garden's value at $600 million to $800 million. Viacom will be able to use almost all the proceeds to pay down the considerable debt it took on when it acquired the Garden properties in March as part of its $9.7 billion acquisition of Paramount Communications.
"I want to congratulate Sumner Redstone for the briefest and most successful ownership of sports teams in history," Cablevision's chairman, Charles F. Dolan, said yesterday at the Manhattan news conference where the deal was announced.
It was not clear yesterday whether television viewers in metropolitan New York should be counted among the winners or the losers. Gov. Mario M. Cuomo, on hand for the announcement, said it was good news because both ITT and Cablevision are New York companies that "are loyal to the city and the state."
But the New York State Attorney General, G. Oliver Koppell, said he was concerned because the deal gives Cablevision, based in Woodbury, L.I., considerable control of the New York television sports market.
Not only would Cablevision, the nation's fourth-largest cable systems operator, own the Knicks and Rangers and control television rights to their games, but it would also have cable rights to New York Yankees baseball games, which are carried on the MSG Network. And Cablevision would continue to control local cable rights to the New York Mets baseball team, the New York Islanders and New Jersey Devils hockey teams and the New Jersey Nets basketball team.
Mr. Koppell, said in an interview that the consolidation of so much local sports programming into Cablevision's hands raised "very significant" antitrust concerns and that he would begin an immediate investigation.
Some political analysts said yesterday that the differences between Mr. Koppell's and Mr. Cuomo's assessments of the deal might have less to do with marketplace dynamics and more with the fact that each is a politician running to keep his office -- the Governor, who wants to speak of better times ahead for the people of New York, and the Attorney General, who needs to portray himself as a tough advocate for the little guy.
The deal could also be subject to at least routine Federal review from the Justice Department and the Federal Trade Commission. Cablevision will also find itself under scrutiny by the Federal Communications Commission, whose job it would to be to insure that Cablevision makes its sports programming available to any direct competitors to its local cable systems. F.C.C. officials could not be reached for comment yesterday.
For executives at Madison Square Garden itself, a change in ownership raises questions about how much longer they might have their jobs -- particularly Robert Gutkowski, the Garden's president.
For Wall Street, the biggest question is whether the deal will prove a savvy one for ITT, a company whose primary holdings are in the insurance, financial services, hotel and product manufacturing businesses. Despite the fact that it has no experience in the sports business, ITT is putting up 85 percent of the money for the all-cash acquisition.
Rand V. Araskog, ITT's chairman, predicted a long-term payoff. "The opportunity to acquire a world-class media property like Madison Square Garden comes along once in a lifetime and we were determined it would be ours," Mr. Araskog said.
A Smaller Investment
But for Cablevision, the agreement so far appears to be a less risky proposition, because it is paying much less money up front and already has expertise in sports programming with regional sports networks around the country.
The parties hope to complete the transaction by the end of the year. Between them, ITT and Cablevision intend to pay for the Garden with roughly $700 million in cash they have on hand and $375 million in borrowed money. Cablevision's upfront cash commitment will be about $100 million.
Cablevision, which will be an equal management partner with ITT from the outset, is expected to become ITT's 50-50 financial partner in the Garden within a year, either through a cash investment or by selling ITT a minority stake in Rainbow Programming Holdings. Rainbow controls Cablevision's sports cable services as well as other entertainment services, including American Movie Classics and a cultural channel called Bravo.
Dennis Leibowitz, an analyst who follows cable for Donaldson, Lufkin & Jenrette Inc., said yesterday that for Cablevision, the success of the deal could depend on the value the two companies place on Rainbow. "But over all," he said, the price of the Garden acquisition "is substantially more than we thought it was worth."
Cablevision's chairman, Mr. Dolan, said yesterday that his company had no plan to merge the MSG Network with Cablevision's Sportschannel. But he said that owning the two sports services would probably result in significant savings. ITT and Cablevision also said they would not sell off any Garden assets, but would keep the arena, sports teams and cable network as a single business.
As for Liberty Media, the programming division of the cable television giant Tele-Communications Inc., it remains to be seen whether the company blundered by refusing to budge beyond its $1 billion offer. The man calling the shots for Liberty was John C. Malone, the tough president of Tele-Communications, who is known to walk away from even the most glamorous deals -- as he did in February after months of negotiating a planned $33 billion merger with the Bell Atlantic Corporation.
In the Garden bidding, although many companies had been expressing interest in the properties all summer, the first formal bids were not made until the Aug. 15 deadline, and they came only from Liberty and the ITT-Cablevision team.
Robert Bowman, the chief financial officer of ITT, said in an interview yesterday that ITT's Aug. 15 bid had been $1.055 billion. Viacom countered with a request for $1.2 billion, but the bidders did not budge.
Then, last Thursday at 2 P.M., Mr. Araskog and Mr. Dolan met with Mr. Redstone and Viacom's president, Frank J. Biondi Jr., at Viacom's headquarters in midtown Manhattan.
As Mr. Araskog recalled it yesterday, "We were then told on Friday morning that if we moved our bid a little, we could close the deal. "
After pondering their options throughout the day, each company finally decided to increase its commitment by $10 million, raising the offer to $1.075 billion. By the time the negotiators for all sides could settle the remaining details, it was 4:30 A.M. Saturday when the final contract was signed at the Lexington Avenue offices of Viacom's lawyers, Sherman & Sterling.
Whether Viacom still considered Liberty an active bidder late last week was not clear. According to a business executive close to Liberty Media, Mr. Redstone and Mr. Malone had reached an impasse early in the week. This person said Mr. Malone and his team subsequently tried to re-establish commmunication, but Viacom was no longer interested in talking.
Several Viacom executives, however, said yesterday that both bidding parties continued to be interested as late as Friday. And Liberty's president, Peter Barton, said that he had been unable to gauge where things stood in the late rounds of negotiations.
"We were told we were not the high bidder off and on," Mr. Barton said yesterday. "You couldn't tell whether this was a bluff or not a bluff. It is like going to Sotheby's and bidding against a guy who was on the phone. You're not quite sure what they're bidding."
Certainly Liberty had wanted the property. It already owns a host of cable sports programming services around the country, including some that it runs with its rival Garden bidder, Cablevision. By obtaining the New York teams it would have had a full national complement that might have enabled Liberty to carry out a plan to set up a separate sports-programming company in which it could have sold shares of stock to the public.
Tough Negotiator
But Mr. Malone is a notoriously tough negotiator, as underscored in his dealings with Bell Atlantic. And Mr. Redstone, too, is a fierce dealmaker.
But there was an incentive for the men to reach an agreement because Mr. Redstone would also like to sell Viacom's cable systems, which have one million subscribers, to Tele-Communications. Both men had also sought to benefit from merging the companies' relatively weak pay-movie services, Viacom's Showtime and Tele-Communications' Encore. And Mr. Malone would no doubt like to settle an antitrust suit brought against him and Tele-Communications by Mr. Redstone during the height of last winter's bidding war for Paramount.
Mr. Malone and Mr. Redstone had originally hoped to settle all the issues in a single deal that included the Garden, although Mr. Malone was also willing to buy the Garden separately. In the end, the complexities of the broader transaction, and the pricing of the Garden-only sale, prevented the men from working out either deal.
"These guys got way, way more than these things are worth," Liberty's Mr. Barton said of Viacom and the Garden assets. "The fact that there would be a bidding process is a credit to them."
