ITT Selling Madison Square Garden Stake

ITT Corp. has agreed to sell the bulk of its stake in Madison Square Garden to its 50-50 partner Cablevision Systems Corp., a Long Island-based cable operator. Cablevision will pay ITT $500 million for 38.5%, bringing its stake to 88.5%. ITT has an option to sell the remaining 11.5% to Cablevision for a minimum of $150 million over the next two years.

Cablevision and ITT bought Madison Square Garden--which includes the arena complex, the New York Knicks basketball team, the Rangers hockey club and the MSG television network--from Viacom Inc. in 1995 for $1 billion.

The purchase values the Garden at $1.53 billion, underscoring the rising value of sports as entertainment programming.

ITT is selling its half of the Garden as part of an attempt to fend off a $10.5-billion hostile takeover by Hilton Hotels Corp. “It became apparent that shareholders wanted returns now,” said an ITT spokesman.

Though Hilton had warned the New York-based hotel and casino company not to sell assets, worried about fire sales and having to adjust its bid, the suitor reversed its position.

“We are pleased that ITT appears to be executing the strategy we first endorsed in January of selling noncore assets,” said Stephen F. Bollenbach, president and chief executive of Hilton. “This move by ITT makes the ultimate job of selling nonstrategic assets that much easier, enhances our interest in the company and strengthens our resolve to make this combination a reality.”

The combination would solidify Hilton’s position as a leading hotel and casino operator.

Thursday’s development comes just two weeks after Cablevision paid ITT $168.8 million to boost its stake in the Garden to 50% from 26.6%, a price negotiated as part of the original partnership.

Several interested buyers, including News Corp., have approached ITT, but sources say Cablevision has rights of first refusal on a sale.

For Cablevision, the purchase guarantees its ability to offer cable customers exclusive programming that phone and satellite rivals lack. Sports games have become a key defense for the cable industry. Last year, Comcast bought the Philadelphia Flyers and 76ers teams to secure an edge over competitors.

Cablevision, the nation’s sixth-largest cable system operator with 2.8 million customers, already controls a stable of regional sports networks, including SportsChannel Chicago and Sportschannel Florida.

Cablevision is the most highly leveraged of the major cable companies. But it will obtain bank financing secured by the Garden instead of its cable systems. Last month, Cablevision said it would sell $1 billion worth of cable systems to clean up its balance sheet.

The company could bring in a partner, although it would have to share with ITT any profit from a greater price, according to the terms of the deal.

News Corp. has been preparing its own bid as part of a strategy to challenge ESPN by bundling regional sports networks together to give advertisers national reach. It desperately needs New York for that strategy to work. Its sports partner, Liberty Media, lost out by a slim margin in 1995 to ITT and Cablevision.

Times staff writer Jesus Sanchez and Times wire services contributed to this report.