text size
WWE is being absorbed. Investors should be happy, but they probably wanted a simpler deal.
Johnny Milano/Bloomberg
TO fusion between
World Wrestling Entertainment
and the company that owns the UFC has landed with a bang.
Shares of WWE (ticker: WWE) fell 4.9% on Monday in midday trading after the company announced it was merging with mixed martial arts company Ultimate Fighting Championship, which is part of the
effort group
(EDR). Endeavor’s shares were down 7.2%.
WWE and Endeavor said they plan to form a new merger company that will be controlled by Endeavour.
Investors have bet big on changes to WWE this year after the company announced the January 6th that it was exploring strategic alternatives designed to maximize value for WWE stakeholders.
Investors probably wanted to see WWE acquired for a big premium. Between January 5 and March 31, WWE shares rose 27%. He
S&P 500
increased about 8% in the same period.
WWE came up with a strategic alternative, and one that valued the company at $9.3 billion, far higher than the $7.8 billion value WWE was negotiating on Monday. The UFC is valued at $12.1 billion, according to the companies.
There is no stock and no cash for WWE shareholders who value WWE at $9.3 billion. That valuation is just an idea. Under the deal, WWE’s stock continues to trade under the new stock symbol “TKO” and is just a bigger company. For WWE owners, it brings more management and business diversification to WWE.
Endeavor shares are also still trading. She will own the shares of TKO, as well as her other businesses, which include live sports like the Miami Open tennis tournament.
Combined, the UFC and WWE are generating approximately $1 billion in earnings before interest, taxes, depreciation and amortization, or Ebitda. About $600 million of that comes from the UFC. The other $400 million comes from WWE.
Based on where WWE is trading on Monday, the market is valuing the combined company at approximately 18 times Ebitda. The S&P 500 is trading at approximately 12.4 times Ebitda. He
Nasdaq Composite Index
it trades for around 16.7 times the Ebitda.
He new company will continue to be more expensive than the average company in both indices.
Investors have to decide if there are enough cost savings and further growth for the new company to justify the premium.
Early Wall Street returns are positive and Jefferies analyst Randal Konik likes 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 make WWE’s foundation ever higher,” the analyst wrote in a Monday report. .
Covers Endeavor shares and rates buy shares. The price target is $41 per share, 84% higher than the current price of around $22.20 per share. Endeavor generates about $600 million in Ebitda outside of the UFC. That means it values ​​the new Endeavor at about 19 times Ebitda.
He believes in growth. Investors are still trying to figure out what they think.
Email Al Root at allen.root@dowjones.com
