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MSG Networks Merger Challenge Gets Delaware Court Fast-Track

MSG Networks Shareholder Merger Challenge Gets Court Fast-Track

A proposed shareholder class action challenging the planned merger of MSG Networks Inc. and Madison Square Garden Entertainment Corp., both owned by family members of the billionaire New York Knicks owner James L. Dolan, was fast-tracked by a Delaware judge.

Delaware Chancery Court Judge Kathaleen McCormick on Tuesday granted plaintiff Timothy Leisz’s request for an expedited hearing on his request to block a shareholder vote scheduled for July 8. The hearing will be set for no later than July 1, McCormick said, but she denied Leisz’s request for discovery in advance of the expedited hearing.

Minority shareholders of MSG contend they aren’t getting enough for their shares in what they call an insider transaction and complain directors didn’t do enough to protect their interests. The merger’s rapid pace, MSG shareholders said in the suit, is “the result of the domination and control of the board by the Dolan Family Group.”

Juan Monteverde, a lawyer for Liesz, had argued during the telephone hearing that allowing fast-tracked discovery could shed light on whether Dolan was already envisioning such a deal in 2009, when he was considering the spin-off of MSG Networks from Cablevision.

“I think we’re entitled to see how the Dolan family were thinking,” Monteverde said.

‘Fishing Expedition’

Andrew Ditchfield, a lawyer for MSG Networks, said Dolan’s motives for the transaction were “irrelevant” to the shareholder’s claims that the merger price is unfair.

“Discovery into that,” he said, “feels like a fishing expedition into plaintiff’s fiduciary claims.”

The judge agreed with Ditchfield -- for now. “Maybe I’ll dig into this further and change my mind,” McCormick said, “but at this stage, it seems like a pretty compelling argument.”

The case is one of several challenging the deal. A pension fund in late May sued Dolan, eight members of his family and other MSG Entertainment board members, including former NBA star Isiah Thomas, accusing them of seeking to fund the “rapid” post-pandemic growth of MSG Entertainment by merging it on self-dealing terms with MSG Networks, a “shrinking business that creates cash flow.”

The case is Leisz v. MSG Networks Inc., No. 2021-0504, Delaware Chancery Court (Wilmington).

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