Mixed martial arts powerhouses UFC and sports giants WWE are betting that they are even stronger together. So the executives from the UFC owner’s effort and WWE, the recent WrestleMania 39 weekend in Los Angeles, entered the spotlight to reveal the merger, to form a global sports and entertainment titan, 51 percent of the interest and 49 percent of WWE’s controlling partners.
The opening bell for the new tag team and its stock, under the TKO symbol, is only officially set to ring in the second half of 2023 when the partners expect to close the deal. However, Wall Street on Monday analyzed the details of the payout and the initial trading comments, finding answers to some investor questions and raising others.
Will there be another tender?
Leaked resolution of the deal on April 2 “should ease investor uncertainty about Vince McMahon’s decision to sell the company,” Wolfe Research analyst Peter Supino emphasized in a report written before the official announcement of the deal. Many, including your Wolfe media research, wondered if Vince would sell.
One new question heard by some on April 3rd was whether this deal would be good for WWE pins or if rivals could emerge to compete in the battle royal. “The leak was probably designed to draw competitive interest in the acquisition of WWE,” Supino suggested. “Among the entities with the economic and strategic firepower of Saudi Arabia’s own system, Comcast, Fox, Amazon, Liberty and Netflix,” he wrote, calling the giant an outside contender.
Meanwhile, Wells Fargo’s Steven Cahall argued that the UFC transaction marks the end of the line for WWE’s strategic review. “We don’t expect another bid for WWE as Censeo seems like the most logical partner, given his acquisitive nature and similar/professional assets, including strong knowledge of media outlets for advertising rights and talent management,” he explained. “Premium is solid, and if McMahon is on board, it’s become a controlled WWE company.”
What are the strategic benefits?
Size and material of muscles in media and entertainment business. That is the key factor behind the complex. “The strategic rationale for this business is clear as this creates a pure game of IP entity ownership,” wrote a team of Bank of America analysts led by Jessica Reif Ehrlich. “Furthermore, our view is that EDR as a consolidated company will receive a significant discount that does not properly reflect the true full value of EDR’s portfolio of assets. We believe this transaction is the first step towards unlocking asset value in the EDR portfolio.
That view has been elaborated by others in Vico. “Combined assets will have more leverage in terms of media business, licensing opportunities and the like,” FBN Securities analyst Robert Routh noted in a report. “Therefore, on a pro forma basis, TKO’s combined revenue is expected to grow faster and at a higher margin than either the Company or WWE could stand alone.”
Tired analyst Randal Konik also praised the deal as one for the digital age. “From a fundamental perspective, we want the assets of UFC and even WWE in a world where linear TV is losing part of the streaming market, so the sport lives on in high demand,” Konik explained in the report. “The current WWE and UFC rights expirations expect inverse opportunities in the cash flows of both the UFC and WWE in their respective rights” and further earnings before interest, taxes, depreciation and amortization (EBITDA) in each franchise to drive higher margin growth. .
But one might wonder if the combined giant will start selling joint rights to UFC and WWE programming. A team of analysts Brandon Ross, Rich Greenfield and Mark Kelly at LightShed Partners took a stab at that idea in a January report. “Does it make sense for the UFC and WWE to bundle the rights?” they asked “Probably not. More value is created by selling atomic sports rights than once. The NFL is the first example.
What about cost synergies?
The price synergies are there for the taking, Wall Street and management believe. CFO Jason Lublin stressed on Monday that the combination will generate $50 million in annual operating synergies, in part following the UFC model. After all, its integration by Enitere delivered $70 million in cost synergies.
Whether a new firm can indeed secure similar benefits is an open question. But Lublin showed a combined cost base of $1 billion, excluding direct operating costs. Half of that management sees it as “addressable,” he explained. And he concluded: “We see significant synergies in the ecosystem.”
Supino highlighted the opportunity for “corporate efficiency” plus additional benefits. “While it is difficult for us to increase the amount of trust for outsiders, the company would enjoy the combined synergies with distribution and talent,” he wrote and emphasized: “Such synergies do not exist in our mathematics” or in the models only.
Why do they both drop wood?
WWE shares took a hit, losing 2.15 percent to close at $89.30. Meanwhile, Cona stock fell 5.89 percent to $22.52.
Wall Street experts had noted before the deal was confirmed that investor reaction would depend at least in part on the valuation of the two companies and how much faith investors would place in them. The deal disclosed on Monday gives the UFC an enterprise value of $12.1 billion, while it puts $9.3 billion into the WWE. And the companies said the transaction puts the price at between $106 per share in WWE. While that would be a premium over WWE’s cash value in the sale, WWE’s shareholders would not be paid, but would receive a stake in the newly minted company. “The big question is if the market agrees with the UFC at $12 billion,” Cahall wrote.
A team of LightShed analysts already explained in January that the deal between the two companies could be complex. After all, “The stunt didn’t work (he posted $24 in 2021), and WWE outperformed,” they explained. Because both companies are negotiating major rights that “could dramatically affect future profitability,” experts recommended investors base the deal on expectations for 2026 events, the first year both WWE and UFC will be fully in the next licensing cycle. . But he also emphasized: “Our guess is that their current effort to trust their stock partners is not reflected in this issue, since WWE has provided them with trust.”
What do the rest want for themselves?
With the UFC separated from Enato, investors are also wondering what will happen to the rest of the company, including WME, IMG, The Location and OpenBet. “We expect the core business effort to remain extremely solid,” Konik highlighted in Monday’s report. “The talent representation industry is intertwined. The demand for betting is growing day by day. Live event companies are also a well-suited business in a painful environment that spends on different experiences. And finally, the business of betting companies can flourish as legalization expands through more states in the USA. Also in other We look favorably on business owners like the Miami Open and the PBR. Simply put, a solid, stable, very profitable and growing core business.
Shares of the effort were roughly steady before the market opened on Monday. “No debt or incremental debt was involved with the structure of this transaction, proving that the agency is very confident in reducing the debt of the core effort of the entity,” Konik pointed out. “We believe that the market is very sensitive to debt levels in this area.”
What about Vince McMahon?
WWE executive chairman and majority owner Vince McMahon will be the executive chairman of the newly created firm, while Mark Shapiro will be president and chief operating officer of both the venture and the new company, with Ari Emanuel serving as CEO of both. Meanwhile, Dana White will remain in the role of UFC president while WWE CEO Nick Khan becomes WWE president.
The fact that McMahon, who returned to WWE earlier this year after June 2022 when he “voluntarily retired” from the firm amid a flawed investigation into his board, will serve as the new company’s executive chairman will garner much attention on Monday. . The probe into allegations that McMahon had sexual relations with company employees and later paid the women millions of dollars in separate packages, with non-disclosure agreements.
One observer suggested that there were likely several reasons for McMahon’s position in the company. First, he remained a majority partner in WWE, which would require approval of the sale. and this has been said, when the association is willing to take part.
At the same time, Wall Street experts argued that the effort and investors did not want him in a major day-to-day executive station or in charge of the creative process of WWE, which was led by his son-in-law. wrestler Paul “Triple H” Levesque to positive reviews.
The solution is an attempt to keep McMahon’s current WWE title in the expanded company. The business began with the WWE agreement, effective as March 29, according to which, to January 9. retroactively, he continues to serve as executive chairman for a two-year term. That contract includes extensions issued for further terms of one year, unless either the company or McMahon provides at least 180 days’ notice of non-renewal. But if McMahon is terminated within two years of the “change of control” deal, as the UFC has agreed, he is eligible for a big payout.