A possible tax-free spinoff would create two separately traded public companies to unlock value for the businesses, MSG said on Wednesday.
"This proposed transaction would provide each company with enhanced strategic flexibility, its own defined business focus and clear investment characteristics," said Chief Executive Officer James Dolan, who is expected to be the chairman and CEO of both the companies.
The sports entity will house the New York Knicks and New York Rangers professional sports franchises, while the live entertainment company will include all owned concert-hosting venues such as New York's Madison Square Garden and Radio City Music Hall as well as nightclubs owned by the TAO Group.
Jefferies raised its rating on MSG to "buy" from "hold" and also increased the price target by $117 to $350, with MSG Sports worth $133 and MSG Entertainment $217.
"MSG possesses a collection of unique, world class sports and entertainment assets which are largely underappreciated by investors," Jefferies analyst John Janedis wrote in a client note, adding that the spinoff is expected to better reflect the intrinsic value of the assets.
TAO Group owns restaurant and nightclubs with over 20 venues in New York, Las Vegas and Sydney.
The entertainment business has been driving growth at MSG in the last few quarters. Revenue from this segment more than doubled in the quarter ended March 31 to $159.6 million, while sports fell 3 percent to $300 million.
Shares of MSG, which have climbed nearly 40 percent this year, were last up 11.6 percent at $297.22.
(Reporting by Sonam Rai in Bengaluru; Editing by Saumyadeb Chakrabarty)