{"id":568705,"date":"2023-04-04T00:26:32","date_gmt":"2023-04-03T21:26:32","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/wwe-ufc-how-wall-street-views-the-deal-so-far\/"},"modified":"2023-04-04T00:26:32","modified_gmt":"2023-04-03T21:26:32","slug":"wwe-ufc-how-wall-street-views-the-deal-so-far","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/wwe-ufc-how-wall-street-views-the-deal-so-far\/","title":{"rendered":"#WWE-UFC: How Wall Street Views the Deal So Far"},"content":{"rendered":"
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\n Mixed martial arts powerhouse UFC and sports entertainment giant WWE are betting that they are even stronger together. So executives from UFC owner Endeavor and WWE, fresh off WrestleMania 39 weekend in Los Angeles, stepped into the spotlight to unveil a merger to form a global live sports and entertainment titan, 51 percent controlled by Endeavor and 49 percent owned by WWE shareholders. <\/p>\n

\n The opening bell for the new tag team and its stock, under ticker symbol TKO, is only officially set to sound during the second half of 2023, when the partners expect to close the deal. However, Wall Street on Monday analyzed the deal details and initial management commentary, finding some investor questions answered and others raised. <\/p>\n

\n Will another bidder emerge?<\/strong><\/p>\n

\n The leak of the planned deal on April 2 \u201cshould ease investor skepticism concerning Vince McMahon\u2019s seriousness about selling\u00a0the company,\u201d emphasized\u00a0Wolfe Research analyst Peter Supino in a report written before the official deal announcement. \u201cMany, including your Wolfe Research media<\/a> team, have wondered whether Vince would really sell.\u201c<\/p>\n

\n One new question heard from some on April 3 was whether this deal pins down\u00a0WWE\u00a0for good or if rival bidders could emerge to embark in a battle royal. The \u201cleak is probably designed to draw out competitive interest\u00a0in acquisition of\u00a0WWE,\u201d Supino suggested. \u201cAmong the entities with the financial firepower and strategic rationale to own\u00a0WWE\u00a0[are] Saudi Arabia, Comcast, Fox, Amazon, Liberty and Netflix,\u201d he wrote, calling the streaming giant an outside contender. <\/p>\n

\n Meanwhile, Wells Fargo\u2019s Steven Cahall argued that the UFC transaction marks the end of the line for\u00a0WWE\u2019s strategic review. \u201cWe do not expect another bidder for\u00a0WWE\u00a0as Endeavor seems like the most logical partner given its acquisitive nature and similar\/complementary assets, including strong knowledge of the media market for selling content rights and managing talent,\u201d he highlighted. \u201cThe premium is solid, and if McMahon is on board, then it\u2019s done as\u00a0WWE\u00a0is a controlled company.\u201d<\/p>\n

\n What are the strategic benefits?<\/strong><\/p>\n

\n Size and muscle matter in the media and entertainment business. That is a key factor behind the combination. \u201cThe strategic rationale for this transaction is crystal clear as this creates a pure-play sports IP ownership entity,\u201d wrote a team of Bank of America analysts led by Jessica Reif Ehrlich. \u201cIn addition, it is our view that EDR as a consolidated company was receiving a significant discount that did not app<\/a>ropriately reflect the true value of EDR\u2019s full portfolio of assets. We believe this transaction is a first step to unlocking the underlying asset value within EDR\u2019s portfolio.\u201d<\/p>\n

\n That sentiment was elaborated on by others on the Street. \u201cThe combined entity will have more leverage as far as media right negotiations, licensing opportunities and the like,\u201d FBN Securities analyst Robert Routh noted in a report. \u201cAs a result, on a pro forma basis it is expected the combined TKO will be able to grow revenue faster and at a higher margin than either Endeavor Group or WWE could as stand alone entities.\u201d<\/p>\n

\n Jefferies analyst Randal Konik also lauded the deal as one for the digital age. \u201cFrom a fundamental perspective, we like the assets of UFC and also WWE in a world where linear TV is losing market share to streaming, thus live sport content is in high demand,\u201d Konik explained in a report. \u201cThe upcoming rights expirations for both WWE and UFC present meaningful upside opportunity to the cash flows of both the UFC and WWE in their own rights and will further drive earnings before interest, taxes, depreciation and amortization (EBITDA) margins in each franchise incrementally higher.\u201d<\/p>\n

\n But some may wonder if the combined giant will start selling combined rights to UFC and WWE programming. The team of analysts Brandon Ross, Rich Greenfield and Mark Kelly at LightShed Partners shot down that idea in a January report. \u201cDoes it make sense to bundle UFC and\u00a0WWE\u00a0rights?\u201d they asked. \u201cProbably not. More value has been created by atomizing sports rights than by selling more at once. The NFL is the prime example.\u201d <\/p>\n

\n What about cost synergies?<\/strong><\/p>\n

\n Cost synergies are there for the taking, Wall Street and management believe. Endeavor CFO Jason\u00a0Lublin on Monday touted that the combination could secure $50 million to $100 million in annual operating synergies, in part by following the model of the UFC. After all, its integration by Endeavor delivered $70 million in cost synergies. <\/p>\n

\n Whether the new firm is indeed able to pin down similar benefits is an open question. But Lublin pointed to a combined cost base of $1 billion, excluding direct operating expenditures. Half of that management sees as \u201caddressable,\u201d he explained. And he concluded: \u201cWe see significant operating synergies throughout the ecosystem.\u201d<\/p>\n

\n Supino highlighted the opportunity for \u201ccorporate expense efficiency,\u201d plus additional benefits. \u201cWhile hard to quantify for outsiders, we are confident that the combined company would enjoy additional\u00a0synergies\u00a0with distribution and talent,\u201d he wrote and emphasized: \u201cSuch\u00a0synergies\u00a0are not in our math\u201d or models so far.<\/p>\n

\n Why did both stocks drop?<\/strong><\/p>\n

\n WWE\u00a0shares took a hit, losing to the tune of 2.15 percent to close at $89.30. Meanwhile, Endeavor\u2019s stock fell 5.89 percent to $22.52.<\/p>\n

\n Wall Street experts had noted ahead of the deal confirmation that investor reaction would at least partly depend on the valuation put on the two companies and how much faith investors put in them. The agreement unveiled Monday gives UFC an enterprise value of $12.1 billion, while putting $9.3 billion on\u00a0WWE. And the companies said the transaction puts a price of approximately $106 per share on WWE. While that would be a premium over WWE\u2019s current stock price, unlike in a sale, WWE shareholders will not be paid out, but receive stock in the newly merged firm. \u201cThe big question is if the market agrees with UFC at $12 billion,\u201d wrote Cahall.<\/p>\n

\n The team of LightShed analysts had already explained in January that structuring a deal between the two companies could be complex. After all, \u201cEndeavor\u2019s stock has not worked (went public in 2021 at $24), and\u00a0WWE\u2019s has outperformed,\u201d they explained. Because both companies are about to negotiate major rights deals that \u201ccould dramatically influence their future profitability,\u201d the experts recommended investors analyze the deal based on their expectations for 2026 results, the first year both WWE and UFC will be fully in their next licensing cycle. But they also emphasized: \u201cOur guess is current Endeavor shareholders believe their stock is not reflective of this outcome, whereas\u00a0WWE\u00a0has gotten credit for theirs.\u201d<\/p>\n

\n What does the deal mean for the remaining Endeavor?<\/strong><\/p>\n

\n With UFC being separated from Endeavor, investors are also wondering what will happen to the rest of the company, including WME, IMG, On Location and OpenBet. \u201cWe expect the core Endeavor business to remain extremely solid,\u201d Konik emphasized in a Monday report. \u201cThe talent representation industry is consolidated. And the demand for content is growing ever by the day. The company\u2019s live events business is also well suited in a consumer environment that is shifting spending towards experiences. And finally, the company\u2019s betting business can thrive as legalization expands across more states within the USA. We also look favorably upon other owned businesses like the Miami Open and PBR. Put simply the Endeavor core is a solid, steady, highly profitable and growing entity.\u201d<\/p>\n

\n Shares of Endeavor were roughly steady before Monday\u2019s stock market open. \u201cNo debt or incremental debt was involved with the structure of this transaction, proving management is highly committed to reducing the debt profile of the core Endeavor entity,\u201d Konik pointed out. \u201cWe believe the market is very sensitive to debt levels in this environment.\u201d<\/p>\n

\n What about Vince McMahon?<\/strong><\/p>\n

\n WWE executive chairman and majority shareholder Vince McMahon will serve as executive chairman of the newly created firm, while Mark Shapiro will be president and chief operating officer of both Endeavor and the new company, with Ari Emanuel serving as CEO of both. Meanwhile, Dana White will continue in his role as president of UFC, with WWE CEO Nick Khan becoming president of WWE.<\/p>\n

\n The fact that McMahon, who had returned to WWE early this year after\u00a0in June of 2022, having \u201dvoluntarily stepped back\u201d from the firm amid a misconduct investigation by its board, will serve as executive chairman of the new company drew much attention Monday. The probe had focused on allegations that McMahon had sexual relationships with employees at the company and subsequently paid the women millions of dollars in severance packages, along with nondisclosure agreements.<\/p>\n

\n One observer suggested there were likely multiple reasons for McMahon\u2019s position at the combined company.\u00a0First, he has remained the majority shareholder of WWE, meaning a sale needs his approval. And he has been understood to want to remain involved with the company.<\/p>\n

\n At the same time, Wall Street experts have argued that Endeavor and investors would not want him in a major day-to-day executive post or in charge of WWE\u2019s creative process, which has been led by his son-in-law and ex-wrestler Paul \u201cTrip<\/a>le H\u201d Levesque to positive reviews.<\/p>\n

\n Endeavor\u2019s solution is to let\u00a0McMahon keep his current WWE title at the expanded company. He entered into an employment agreement with WWE, effective as of March 29,\u00a0pursuant to which, retroactive to Jan. 9, he will continue to serve as executive chairman for a term of two years. That contract includes automatic extensions for additional one-year terms unless either the company or McMahon provides at least 180 days\u2019 notice of non-renewal.\u00a0But if McMahon gets terminated within the two-year period following a \u201cchange in control\u201d deal, like the UFC combination, he is eligible to receive a big payout.<\/p>\n<\/p><\/div>\n