Item 8.01 Other Events.
Litigation Related to the Merger
As of July 1, 2021, eleven complaints have been filed in connection with the
Merger.
Six complaints were filed by purported stockholders of MSG Networks in the U.S.
District Court for the Southern District of New York (together, the "MSGN NY
Federal Actions"). On May 7, 2021, a purported stockholder filed a complaint
captioned Shiva Stein v. MSG Networks Inc. et al., 21-cv-04126. On May 21, 2021,
a purported stockholder filed a complaint captioned Jiaming Wang v. MSG Networks
Inc. et al., 21-cv-04578. On May 30, 2021, a purported stockholder filed a
complaint captioned Marc Waterman v. MSG Networks Inc., et al., 21-cv-04814. On
June 21, 2021, a purported stockholder filed a complaint captioned Ezriel Tauber
v. MSG Networks Inc., et al., 21-cv-05445. On June 24, 2021, a purported
stockholder filed a complaint captioned Jerome Anderson v. MSG Networks Inc., et
al., 21-cv-05534. On June 25, 2021, a purported stockholder filed a complaint
captioned Joseph Sheridan v. MSG Networks Inc., et al., 21-cv-05575. All six
complaints are similar. Each complaint names MSG Networks and the MSG Networks
board members as defendants. The Stein, Wang, and Waterman complaints allege,
among other things, that the registration statement on Form S-4 filed by MSG
Entertainment on May 7, 2021 (which was amended on June 2, 2021) in connection
with the Merger is materially incomplete and misleading in violation of
Section 14(a) and Section 20(a) of the Exchange Act and Rule 14a-9 promulgated
thereunder. The Tauber, Anderson and Sheridan complaints allege that the
Definitive Proxy Statement is materially incomplete and misleading in violation
of the Exchange Act. All six complaints seek, among other relief, an injunction
preventing the closing of the Merger unless and until the defendants disclose
material information allegedly omitted from the registration statement or
Definitive Proxy Statement, rescission of the Merger Agreement to the extent
already implemented (or awarding of rescissory damages), damages, and an award
of attorneys' and experts' fees.
Two additional disclosure complaints were filed by purported stockholders of MSG
Networks in federal district courts (together with the MSGN NY Federal Actions,
the "MSGN Federal Actions"). On June 25, 2021, a complaint captioned Patrick
Plumley v. MSG Networks Inc. et al., 21-cv-00909, was filed by a purported
stockholder of MSG Networks in the U.S. District Court for the District of
Delaware. On June 28, 2021, a complaint captioned Matthew Whitfield v. MSG
Networks Inc. et al., 21-cv-02868, was filed by a purported stockholder of MSG
Networks in the U.S. District Court for the Eastern District of Pennsylvania.
The complaints are similar. The complaints name MSG Networks and the MSG
Networks' board members as defendants and allege that the Definitive Proxy
Statement is materially incomplete and
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misleading in violation of the Exchange Act. The complaints seek, among other
relief, an injunction preventing the closing of the Merger unless and until the
defendants disclose material information allegedly omitted from the Definitive
Proxy Statement, rescission of the Merger Agreement to the extent already
implemented (or awarding of rescissory damages), damages, and an award of
attorneys' and experts' fees.
On May 27, 2021, a complaint captioned Hollywood Firefighters' Pension Fund et
al. v. James Dolan, et al., 2021-0468-KSJM, was filed in the Court of Chancery
of the State of Delaware by purported stockholders of MSG Entertainment against
MSG Entertainment, the MSG Entertainment board of directors, certain Dolan
family stockholders and MSG Networks. The complaint purports to allege
derivative claims on behalf of MSG Entertainment and claims on behalf of a
putative class of MSG Entertainment stockholders concerning the proposed merger.
Plaintiffs allege, among other things, that the Merger is a business combination
with an interested stockholder that is not allowed under Section 203 of the
Delaware General Corporation Law (the "DGCL"), that the MSG Entertainment board
members and majority stockholders violated their fiduciary duties in agreeing to
the proposed Merger, and that the disclosures herein relating to the Merger are
misleading or incomplete. Plaintiffs seek, among other relief, declaratory and
preliminary and permanent injunctive relief enjoining the stockholder vote and
consummation of the Merger, and an award of damages in the event the transaction
is consummated and plaintiffs' attorneys' fees. On June 15, 2021, plaintiffs
filed a brief in support of its motion seeking a preliminary injunction
enjoining the MSG Entertainment stockholder vote and consummation of the Merger,
which defendants have opposed. The preliminary injunction hearing was held by
the Court of Chancery on July 1, 2021, and a decision of the Court is expected
before the stockholders' vote on July 8, 2021.
On June 1, 2021, a complaint captioned Cody Laidlaw v. James Dolan et al.,
No. 606861-2021, was filed by a purported stockholder of MSG Entertainment in
the New York Supreme Court (Nassau County). The complaint names MSG
Entertainment and the MSG Entertainment board members as defendants and alleges
that the MSG Entertainment board members breached their fiduciary duties in
connection with the transaction and that the proxy for the proposed Merger filed
on June 4, 2021 is materially incomplete and misleading. The complaint seeks,
among other relief, an injunction preventing the closing of the Merger unless
and until the defendants disclose material information allegedly omitted from
the registration statement, an award of compensatory or rescissory damages, and
an award of attorneys' and experts' fees. On June 14, 2021, plaintiff filed a
motion for a preliminary injunction asking the court to enjoin the July 8, 2021
stockholder vote in the absence of supplemental disclosures. On June 30, 2021,
this action was voluntarily dismissed with prejudice.
On June 9, 2021, a complaint captioned Timothy Leisz v. MSG Networks Inc. et
al., 2021-0504-KSJM, was filed in the Court of Chancery of the State of Delaware
by a purported stockholder of MSG Networks against MSG Networks, the MSG
Networks board, certain Dolan family stockholders and MSG Entertainment. The
complaint purports to allege claims on behalf of a putative class of MSG
Networks stockholders concerning the proposed Merger. The MSG Networks plaintiff
alleges, among other things, that the Merger is a business combination with an
interested stockholder that is not allowed under Section 203 of the DGCL, that
the MSG Networks board members and majority stockholders violated their
fiduciary duties in agreeing to the proposed merger, and that the disclosures
relating to the merger are misleading or incomplete. Plaintiff seeks, among
other relief, declaratory and preliminary and permanent injunctive relief
enjoining the stockholder vote and consummation of the Merger, and an award of
damages in the event the transaction is consummated and plaintiff's attorneys'
fees. On June 21, 2021, plaintiff filed a brief in support of his motion seeking
a preliminary injunction enjoining the MSG Networks stockholder vote and
consummation of the Merger, which defendants have opposed. The preliminary
injunction hearing was held by the Court of Chancery on July 1, 2021, and a
decision of the Court is expected before the stockholders' vote on July 8, 2021.
MSG Entertainment and MSG Networks believe that the claims in these actions are
without merit and that no further disclosure is required under applicable law.
However, in order to avoid the risk of the MSGN Federal Actions and the Laidlaw
action delaying or adversely affecting the Merger and to minimize the costs,
risks, and uncertainties inherent in litigation, and without admitting any
liability or wrongdoing, MSG Entertainment and MSG Networks have determined to
voluntarily supplement the Definitive Proxy Statement as described in this
Current Report on Form 8-K. Nothing in this Current Report on Form 8-K shall be
deemed an admission of the legal necessity or materiality under applicable laws
of any of the disclosures set forth herein. To the contrary, MSG Entertainment
and MSG Networks specifically deny all allegations in the MSGN Federal Actions
and the Laidlaw action that any additional disclosure was or is required.
As a result of supplemental disclosures to the Definitive Proxy Statement set
forth herein, the plaintiffs in the MSGN Federal Actions and the Laidlaw action
agreed to voluntarily dismiss their actions with prejudice. The Hollywood
Firefighters and Leisz actions remain pending.
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Supplemental Disclosures to Definitive Proxy Statement
This supplemental information to the Definitive Proxy Statement should be read
in conjunction with the Definitive Proxy Statement, which should be read in its
entirety. Nothing herein shall be deemed an admission of the legal necessity or
materiality of any of the disclosures set forth herein. All page references in
the information below are to pages in the Definitive Proxy Statement, and all
terms used but not defined below shall have the meanings set forth in the
Definitive Proxy Statement. Except as supplemented by the information contained
herein, all information set forth in the Definitive Proxy Statement continues to
apply and should be considered in voting your shares at the special meeting of
MSG Networks stockholders to be held on July 8, 2021.
The following underlined language is added to the sixth full paragraph in the
section of the Definitive Proxy Statement entitled "The Merger-Background of the
Merger" that appears on pages 59-60.
On January 6, 2021, the MSGE board held a board meeting. Representatives of
Sullivan & Cromwell LLP, regular counsel to MSG Entertainment ("Sullivan &
Cromwell"), and members of MSG Entertainment's management participated in the
meeting. Sullivan & Cromwell reviewed with the MSGE board certain legal matters
including the directors' fiduciary duties in connection with their consideration
of a potential strategic transaction with MSG Networks, the potential conflicts
of interest created by the fact that the Dolan family group is a controlling
stockholder of both MSG Entertainment and MSG Networks and the need for MSG
Entertainment to form a fully empowered special committee comprised solely of
independent and disinterested directors in order to consider a potential
transaction with MSG Networks. Following discussion regarding the legal and
corporate governance matters presented by counsel, the MSGE board approved
resolutions authorizing the creation of the MSGE special committee, and vested
it with the full power and authority of the MSGE board to evaluate and determine
whether or not MSG Entertainment should pursue a potential strategic transaction
with MSG Networks and, if the MSGE special committee determined to so pursue a
transaction, or in connection with its evaluation of whether or not to pursue a
transaction, to among other things, (i) investigate the appropriate relative
valuations of MSG Entertainment and MSG Networks; (ii) evaluate and determine
the possible terms of a potential transaction, including with respect to
transaction structure and price; (iii) interact with representatives of MSG
Networks regarding a potential transaction at such time and on such terms as the
MSGE special committee deemed appropriate; (iv) establish, approve, modify,
monitor and direct the process and procedures related to the evaluation and
negotiation of a potential transaction by MSG Entertainment; (v) negotiate with
MSG Networks and its representatives and advisors all elements of a potential
transaction, including the transaction structure, price, terms and conditions
(including the terms and conditions of any definitive agreements with respect
thereto); (vi) to the extent the MSGE special committee deemed it appropriate,
report to the MSGE board its recommendations and determinations with respect to
a potential transaction, including whether such potential transaction should be
approved by the MSGE board; and (vii) determine to not pursue a potential
transaction and to terminate any and all discussions and negotiations by MSG
Networks concerning a potential transaction. The MSGE board also resolved
(i) not to recommend or approve any such transaction without a prior favorable
recommendation from the MSGE special committee and (ii) to empower the MSGE
special committee to select and retain legal counsel, financial advisors,
accountants and other advisors as the MSGE special committee deems necessary to
assist in discharging its responsibilities. The MSGE board appointed Matthew C.
Blank and Frederic V. Salerno to serve as the members of the MSGE special
committee, each of whom was determined by the MSGE board to (i) be independent
directors for purposes of the New York Stock Exchange corporate governance
standards, (ii) not be affiliated with MSG Networks or the Dolan family group
and (iii) not have an interest in a potential transaction that is different
from, or in addition to, the interests of MSG Entertainment's stockholders
generally.
The following underlined language is added to the third full paragraph in the
section of the Definitive Proxy Statement entitled "The Merger-Background of the
Merger" that appears on page 60.
On January 7, 2021, the MSGN board held a board meeting. Representatives of
Sullivan & Cromwell, regular counsel to MSG Networks, and members of MSG
Networks' management participated in the meeting. Sullivan & Cromwell reviewed
with the MSGN board certain legal matters including the directors' fiduciary
duties in connection with their consideration of a potential strategic
transaction with MSG Entertainment, the potential conflicts of interest created
by the fact that the Dolan family group is a controlling stockholder of both MSG
Entertainment and MSG Networks and the need for MSG Networks to form a fully
empowered special committee comprised solely of independent and disinterested
directors in order to consider a potential transaction with MSG Entertainment.
Following discussion regarding the legal and corporate governance matters
presented by counsel, the MSGN board approved resolutions authorizing the
creation of the MSGN special committee, and vested it with the full power and
authority of the MSGN board to evaluate and determine whether or not MSG
Networks should pursue a potential strategic transaction with MSG Entertainment
and, if the MSGN special committee determined to so pursue a transaction, or in
connection with its evaluation of whether or not to pursue a
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transaction, to, among other things, (i) investigate the appropriate relative
valuations of MSG Networks and MSG Entertainment; (ii) evaluate and determine
the possible terms of a potential transaction, including with respect to
transaction structure and price; (iii) interact with representatives of MSG
Entertainment regarding a potential transaction at such time and on such terms
as the MSGN special committee deemed appropriate; (iv) establish, approve,
modify, monitor and direct the process and procedures related to the evaluation
and negotiation of a potential transaction by MSG Networks; (v) negotiate with
MSG Entertainment and its representatives and advisors all elements of a
potential transaction, including the transaction structure, price, terms and
conditions (including the terms and conditions of any definitive agreements with
respect thereto); (vi) to the extent the MSGN special committee deemed it
appropriate, report to the MSGN board its recommendations and determinations
with respect to a potential transaction, including whether such potential
transaction should be approved by the MSGN board; and (vii) determine to not
pursue a potential transaction and to terminate any and all discussions and
negotiations by MSG Entertainment concerning a potential transaction. The MSGN
board also resolved (i) not to recommend or approve any such transaction without
a prior favorable recommendation from the MSGN special committee and (ii) to
empower the MSGN special committee to select and retain legal counsel, financial
advisors, accountants and other advisors as the MSGN special committee deems
necessary to assist in discharging its responsibilities. The MSGN board
appointed Joel M. Litvin, who had previously been a member of the 2019 special
committee, and Joseph M. Cohen to serve as the members of the MSGN special
committee, each of whom was determined by the MSGN board to (i) be independent
directors for purposes of the New York Stock Exchange corporate governance
standards, (ii) not be affiliated with MSG Entertainment or the Dolan family
group and (iii) not have an interest in a potential transaction that is
different from, or in addition to, the interests of MSG Networks' stockholders
generally.
The following underlined language is added to the second to last paragraph in
the section of the Definitive Proxy Statement entitled "The Merger-Background of
the Merger" that appears on page 63.
On March 10, 2021, an article published on bloomberg.com (the "Bloomberg
article") reported that MSG Networks and MSG Entertainment were in the early
stages of deliberations regarding a potential sale of MSG Networks to MSG
Entertainment. On March 11, 2021, the MSGE special committee held a meeting with
Moelis, Raine and Wachtell Lipton, during which Moelis and Raine reported that
LionTree and Morgan Stanley confirmed that the MSGN special committee and its
advisors were prepared to receive a proposal from the MSGE special committee.
The MSGE special committee and its advisors discussed the materials prepared by
the advisors and determined to make a proposal to the MSGN special committee.
The MSGE special committee discussed with Wachtell Lipton, Moelis and Raine that
a combination of MSG Entertainment and MSG Networks would not constitute a
change of control of either company and determined to make a proposal for an "at
market" transaction based on the 60-day weighted average stock prices of the
companies. The MSGE special committee also considered the potential benefits,
burdens and implications of seeking to condition the completion of the
transaction on the receipt of approval by a majority of the shareholders
unaffiliated with the Dolan family group, including of providing unaffiliated
stockholders the opportunity to vote separately on the transaction, and the
potential disadvantage of creating execution risk for the transaction and the
possibility of a small number of stockholders potentially having a
disproportionate influence. The MSGE special committee also considered the
extent, if any, that conditioning the transaction on the approval of a majority
of the stockholders unaffiliated with the Dolan family group would have on the
judicial standard of review of a transaction. After discussing the matter and
considering these benefits and burdens, the MSGE special committee determined to
proceed without seeking to condition the completion of the transaction on
receipt of approval by a majority of the stockholders unaffiliated with the
Dolan family group.
The following underlined language is added to the section of the Definitive
Proxy Statement entitled "The Merger-Opinion of the Financial Advisors to the
MSGE Special Committee-Opinion of Moelis & Company LLC-Summary of Financial
Analyses-Transaction Analysis-DCF-Based Has/Gets Analysis" that appears on
pages 84-85.
The following table summarizes the results of the DCF-based has/gets analysis:
Low Mid High
Standalone MSG Entertainment per Share Value $65.65 $85.50 $120.27
Pro Forma MSG Entertainment per Share Value $70.04 $92.85 $130.44
Increase (%)
6.7% 8.2% 8.5%
The implied present value range of the expected cost and tax synergies provided
by MSGE management discounted based on a pro forma WACC range of 7.5% - 9.25%
was as follows:
($ in millions) Low Mid High
Tax Synergies DCF Value $ 103 $ 105 $ 106
Cost Synergies DCF Value $ 81 $ 101 $ 133
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The following underlined language is added to the last sentence of the last full
paragraph in the section of the Definitive Proxy Statement entitled "The
Merger-Opinion of the Financial Advisors to the MSGE Special Committee-Opinion
of Raine Securities LLC-Summary of Material MSG Networks Financial
Analysis-Selected Comparable Companies Analysis of MSG Networks" that appears on
page 94.
For purposes of this analysis, Raine adjusted the adjusted MSGN projections for
fiscal year 2022 by adding back $7 million to post-SBC AOI for the assumed
one-time impact of the COVID-19 pandemic provided in the MSG Networks
projections.
The following underlined language is added to the last full paragraph in the
section of the Definitive Proxy Statement entitled "The Merger-Opinion of the
Financial Advisors to the MSGE Special Committee-Opinion of Raine Securities
LLC-Miscellaneous" that appears on page 95.
Matthew Blank, a director of MSG Entertainment and a member of the MSGE special
committee, is a senior advisor to Raine, and will not receive compensation from
Raine in connection with this transaction. Mr. Blank, in his capacity as a Raine
Senior Advisor, receives a fixed monthly consulting fee and does not share in
Raine's profits.
The following underlined language is added to, and the crossed out language is
deleted from, the third full paragraph in the section of the Definitive Proxy
Statement entitled "The Merger-Opinion of the Financial Advisors to the MSGN
Special Committee-Opinion of Morgan Stanley & Co. LLC" that appears on page 107.
As compensation for its services, MSG Networks, on behalf of the MSGN special
committee, has agreed to pay Morgan Stanley a fee of approximately $7.6 million,
based on the volume weighted average price of the publicly-traded MSGE Class A
common stock during the twenty trading day period ended April 30, 2021 of
$89.06, which is contingent upon the consummation of the merger. However, if the
merger is not consummated and MSG Networks receives a termination fee pursuant
to the termination provisions in the merger agreement, then MSG Networks must
pay Morgan Stanley a fee of approximately $3.5 million. MSG Networks has also
agreed to reimburse Morgan Stanley for certain expenses incurred in performing
its services. In the two years prior to the date of Morgan Stanley's opinion,
Morgan Stanley and its affiliates have provided financing services for, and are
lenders to, MSG Networks and AMC Networks Inc. (an affiliate of MSG
Entertainment and MSG Networks) for which it has received aggregate fees of less
than $2 million approximately $1.50 million, and Morgan Stanley has provided
financial advisory services to the 2019 special committee in connection with the
2019 discussions involving a possible transaction with TMSGC, for which it has
received aggregate fees of less than $2 million approximately $1.25 million.
Morgan Stanley may also seek to provide financial advisory and financing
services to MSG Networks and MSG Entertainment and their respective affiliates
in the future and would expect to receive fees for the rendering of these
services. In addition, MSG Networks has agreed to indemnify Morgan Stanley and
its affiliates, their respective directors, officers, agents and employees and
each person, if any, controlling Morgan Stanley or any of its affiliates against
certain liabilities and expenses, including certain liabilities under the
federal securities laws, related to or arising out of Morgan Stanley's
engagement.
The following underlined language is added to, and the crossed out language is
deleted from, the first three full paragraphs in the section of the Definitive
Proxy Statement entitled "The Merger-Opinion of the Financial Advisors to the
MSGN Special Committee-MSG Networks Financial Analyses-Selected Publicly Traded
Companies Analysis" that appears on page 108.
LionTree and Morgan Stanley reviewed publicly available financial and stock
market information for MSG Networks and the following publicly traded companies:
• AMC Networks Inc.
• Discovery, Inc.
• Fox Corporation
• Sinclair Broadcast Group, Inc., or Sinclair
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• The Walt Disney Company
• ViacomCBS Inc.
LionTree and Morgan Stanley reviewed publicly observable trading valuation data
points, including the historical MSGN Class A common stock trading prices MSG
Networks next-twelve-month EBITDA (as defined below) trading valuation range
since January 2017 (which ranged from 5.1x to 9.4x), as well as the implied
valuation of Diamond Sports Group (a subsidiary of Sinclair) assuming no equity
value and based on the enterprise value implied by the trading value of its net
debt (implying an EBITDA (as defined below) multiple of 7.3x), and equity
research implied value of the core media businesses (excluding the value of the
streaming business) of MSG Networks' peers (ranging from 3.0x to 6.0x for peers
listed above (excluding Sinclair, Inc.), as well as the Walt Disney Company at
11.0x) as set forth below, as well as enterprise values of the selected publicly
traded companies, calculated as equity values based on closing stock prices on
March 19, 2021, plus debt, less cash, and adjusted for minority interest and
non-core assets as a multiple of calendar year 2021 and calendar year 2022
forecasted earnings before interest, taxes, depreciation and amortization,
commonly referred to as EBITDA. The EBITDA multiples (after deducting
stock-based compensation from EBITDA ("post-SBC")) observed for the selected
publicly traded companies for calendar year 2021 and calendar year 2022 ranged
from 8.0x to 17.2x and 8.2x to 16.2x, respectively are set forth below.
Aggregate Value ("AV") /2021 AV/2022E 2021E Core
Estimated ("E") EBITDA EBITDA AV/EBITDA
AMC Networks Inc. 8.0x 8.2x 3.0x
Discovery, Inc. 17.2x 15.9x 6.0x
Fox Corporation 8.9x 8.6x 5.0x
Sinclair 10.5x 9.3x N/A
The Walt Disney Company N/A N/A 11.0x
ViacomCBS Inc. 16.7x 16.2x 5.0x
Average 12.3x 11.7x 6.0x
LionTree and Morgan Stanley then applied multiples of 7.0x to 8.0x derived from
the selected publicly traded companies analyses to MSG Networks' fiscal year
2022 estimated adjusted operating income ("AOI") (post-SBC). Estimated financial
data of the selected publicly traded companies were based on publicly available
research analysts' estimates, and estimated financial data of MSG Networks were
based on the MSG Networks projections. This analysis indicated the following
approximate implied per share equity value reference ranges for MSG Networks:
The following underlined language is added to, and the crossed out language is
deleted from, the two paragraphs in the section of the Definitive Proxy
Statement entitled "The Merger-Opinion of the Financial Advisors to the MSGN
Special Committee-MSG Networks Financial Analyses-Discounted Cash Flow Analyses"
that appears on pages 108-109.
As set forth below, LionTree and Morgan Stanley performed a discounted cash flow
analysis of MSG Networks to calculate the estimated present value of the
standalone unlevered, after-tax free cash flows that MSG Networks was forecasted
to generate during MSG Networks' fiscal years 2022 through 2025. based on MSGN
management AOI forecasts included in the MSG Networks projections, Unlevered
Free Cash Flow was defined as AOI minus capital expenditures, taxes, and
stock-based compensation, and plus or minus, as applicable, changes to net
operating working capital and other operating assets and liabilities.
LionTree and Morgan Stanley calculated terminal values for MSG Networks by
applying terminal multiples (based on publicly observable trading valuation data
points) ranging from 7.0x to 8.0x to MSG Networks' fiscal year 2025 AOI
(post-SBC) under the MSG Networks projections.
Low High
Exit Multiple 7.0x 8.0x
Terminal AOI (in millions) $ 218 $ 218
Terminal Value (in millions) $ 1,523 1,740
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