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WWE has been taken over. Investors should be happy, but they probably wanted a simpler deal.
Johnny Milano/Bloomberg
a merger between
World Wrestling Entertainment
And the company that owns the UFC has landed a hit.
WWE (Ticker: WWE) stock fell 4.9% Monday in midday trading after the company announced it was merging with mixed martial arts company Ultimate Fighting Championship, which is part of
Endeavor Group
(EDR). Endeavor stock fell 7.2%.
WWE and Endeavor said they plan to form a new company to merge under Endeavor’s control.
Investors have been betting big on changes in WWE this year after the company announced it Jan 6 that she was exploring strategic alternatives designed to maximize value for WWE stakeholders.
Investors probably wanted to see WWE take a big premium. Between January 5 and March 31, WWE stock rose about 27%. the
Standard & Poor’s 500
It rose about 8% over the same period.
WWE came up with a strategic replacement, one that values the company at $9.3 billion, well above the $7.8 billion valuation WWE traded on Monday. The UFC is valued at $12.1 billion, according to the companies.
There is no stock or cash coming to WWE shareholders that would value WWE at $9.3 billion. This review is just an idea. Under the deal, WWE stock continues to trade under the new stock symbol “TKO” and is just a larger company. For WWE holders, it brings more diversification in management and business to WWE.
Shares of Endeavor continue to trade as well. She will own shares of TKO in addition to its other businesses, which include live sports like the Miami Open tennis tournament.
The UFC and WWE together generate nearly $1 billion in earnings before interest, taxes, depreciation, and amortization, or Ebitda. About $600 million of that comes from the UFC. Another $400 million comes from WWE.
Based on where WWE traded Monday, the market values the combined company at approximately 18 times Ebitda. The S&P 500 trades at about 12.4 times Ebitda. the
Nasdaq Composite Index
It trades at around 16.7 times Ebitda.
the The new company will still be more expensive than the average company in both indices.
Investors have to decide if there are enough cost savings and enhanced growth for the new company to justify the premium.
Early returns from Wall Street are positive with Jefferies analyst Randall Konnick liking the deal.
“The UFC is in the early stages of its growth trajectory and Endeavor’s expertise in sports, marketing representation, and live events can incrementally elevate WWE’s fundamentals,” the analyst wrote in Monday’s report.
It covers Endeavor stock and buying stock quotes. The price target is $41 a share, up 84% from the current price of about $22.20 a share. Endeavor generates about $600 million in non-UFC affiliate Ebitda. This means that he values the new Endeavor at approximately 19 times the value of Ebitda.
Believe in growth. Investors are still trying to figure out what to think.
Write to Al Root at [email protected]
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