World Wrestling Entertainment Inc. shares tumbled as investors expressed disappointment in plans to combine the professional wrestling company with Endeavor Group Holdings Inc.’s mixed martial arts league, Ultimate Fighting Championship.
(Bloomberg) — World Wrestling Entertainment Inc. shares tumbled as investors expressed disappointment in plans to combine the professional wrestling company with Endeavor Group Holdings Inc.’s mixed martial arts league, Ultimate Fighting Championship.
The new entity, a $21-billion “sports and entertainment powerhouse,” according to a statement from the companies, will be listed on the New York Stock Exchange under the ticker TKO. Instead of receiving cash or Endeavor shares as part of the deal, WWE shareholders will see their equity rolled into the merged company, a move that underwhelmed investors banking on a more straightforward acquisition.
“Investors were looking for a cash takeout, hoping that WWE would catch a ‘trophy asset’-type premium,” said Aaron Glick, a merger arbitrage specialist at Cowen & Co. “Instead, they are left with a strategic merger and an ongoing sports play.”
Endeavor has been pursuing WWE for the past few months, eager to become the undisputed king of combat entertainment. Chief Executive Officer Ariel Emanuel aims to use his company’s existing expertise and resources in negotiating media rights and staging events all over the world to increase sales and cut costs at WWE.
“This is a rare opportunity to create a global live sports and entertainment pure play built for where the industry is headed,” said Emanuel, who will lead the new enterprise.
The combined group will be capitalized by $150 million cash at closing, with Endeavor contributing 51% and WWE 49%, Endeavor Chief Financial Officer Jason Lublin said in a presentation to investors on Monday. The deal is expected to close by the end of the fourth quarter. Lublin said UFC will account for $12.1 billion in the enterprise value of the new company, implying a per share value of UFC of $20.15, about 84% of Endeavor’s price as of Friday’s close. The transaction values WWE at an enterprise value of $9.3 billion.
WWE shares fell as much as 9.3% to $82.81 in early trading in New York, the biggest intraday decline since February 2021. The shares recovered some of those losses and were down 5.1% at 12:03 p.m. Endeavor was down 6.8% to $22.29.
“Investors were looking for a larger premium than is implied by the deal,” said Peter Supino, managing director and media & telecom analyst at Wolfe Research. “The stock is down because the market doesn’t know how to value the currency that Endeavor is paying with.”
McMahon Remaining
Vince McMahon, WWE’s 77-year-old controlling shareholder, has run WWE for four decades. He will remain involved in the business after the deal, as will Nick Khan, the company’s CEO. McMahon described the deal as “without a doubt the best outcome for our shareholders and other stakeholders.”
In an interview on CNBC, McMahon said WWE had “many suitors,” and Emanuel said Endeavor “paid a fair price.”
McMahon reinstated himself as executive chairman in January to oversee a strategic review of the company. He left the firm last year following revelations that he had paid millions of dollars to settle sexual misconduct claims. While he was gone, the leadership of the company began to discuss strategic options ahead of the next round of negotiations with companies that air WWE matches on TV.
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WWE is a rare prize in media. Though it is scripted entertainment, it delivers a live audience for its events akin to a sporting event. Fox Corp. and Comcast Corp. pay hundreds of millions of dollars a year for the rights to show the matches. The sale is being finalized against the backdrop of Wrestlemania, one of the biggest events on WWE’s calendar. This year’s event is being held across two days in Los Angeles.
Emanuel and his leadership team have transformed Endeavor over the years from its roots representing Hollywood actors into a multi-faceted media company. They represent athletes, sell media rights to sporting events and own live events across sports and fashion. They also operate sports-betting technology company.
UFC is the most valuable asset Endeavor owns, and now Emanuel has doubled down on combat sports.
Devoted Fans
WWE is a business like few others. It’s a combination of sports and entertainment with devoted fans who show up to follow the story lines in and out of the ring. Some 80,000 fans turned out each of the two nights to fill SoFi Stadium in Los Angeles for the company’s annual Wrestlemania. Fans even cheered the hosts at an outdoor stage during a pre-game show. Many of them sported gold championship belts that cost hundreds of dollars.
Pedro Calhau an IT worker from Portugal was attending his first Wrestlemania. He spent $400 for his belt, which was draped over his shoulder.
“It’s like a soap opera, it’s like theater,” Calhau said outside the stadium. “For us, it’s a getaway.”
Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC are serving as financial advisors to Endeavor, and Latham & Watkins LLP is serving as legal advisor to Endeavor. The Raine Group is acting as lead financial advisor to WWE. J.P. Morgan and Moelis & Company LLC are also acting as financial advisors to WWE.
–With assistance from Christopher Palmeri, Katie Roof and Yiqin Shen.
(Updates with analyst comment in eighth paragraph.)
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