On Wrestlemania weekend, news broke that Endeavor (EDR -0.13%) is spinning off its subsidiary Ultimate Fighting Championship (UFC) to form a new company with World Wrestling Entertainment (WWE) in an all-stock deal valuing the leading professional wrestling company at $9.3 billion.
Here's everything you need to know about the deal and whether it's worth buying into.
WWE stock is a champion
While the wrestling may be fake, WWE's stock returns have been genuine. Over the past five years, WWE stock generated a total return of 172%, completely dominating the S&P 500's total return of 73%.
One reason that WWE has excelled is its television licensing deals, where the company makes most of its $1.3 billion annual revenue. Those lucrative deals with media giants like Comcast and Fox are set to expire at the end of 2024 and were set for renegotiations in mid-2023.
However, before those negotiations started, the WWE put up a "for sale" sign on itself at the beginning of the year. This coincided with longtime CEO Vince McMahon returning to WWE as executive chairman despite alleged sexual harassment and misrecording of company funds.
Then, during Wrestlemania weekend, WWE's biggest event of the year, it was announced that the company would be sold at a valuation of $9.3 billion, or a 37% premium.
The fine print of the WWE deal
The deal represents an enterprise value of $9.3 billion or $106 per share for WWE. But that doesn't mean that will be the final price. That's because the transaction will be an all-stock deal, meaning WWE shareholders will receive shares of the unnamed new company that will be publicly traded under the ticker "TKO."
Endeavor shareholders would represent 51% of the ownership of the newly formed company, while WWE shareholders would retain 49%.
Therefore, the final sale price for WWE will be a moving target because the new company, in theory, is already publicly trading as a combination of WWE and a fraction of Endeavor.
The new company will also issue a post-closing dividend, paying out all excess cash from UFC to shareholders.
According to the announcement, both WWE's and UFC's key management leaders are expected to stay in various roles at the newly formed company, including Vince McMahon as executive chairman.
The deal will need to pass shareholder voting and regulatory hurdles, but it already has board approval from both WWE and Endeavor. If all goes as planned, the transaction is expected to close in the second half of 2023.
Image source: Getty Images.
This deal wants to body-slam the sports entertainment industry with an adrenaline shot of synergistic growth. With WWE and UFC joining forces, the new company will boast an all-star roster of fighting talent, grappling for higher advertising rates and pinning down global merchandising revenues. This power move capitalizes on the insatiable appetite for combat sports and live events, encouraging more fan engagement in this particular corner of the media market.
Is it too late to buy WWE or Endeavor?
Look for more details on the new company in the next few months, but WWE and UFC have obvious similarities in their product and demographics. Their impressive offerings could appeal to many television networks and streaming bidders as a package deal, resulting in increased revenue while saving on operation costs.
So, while it may be attractive for WWE shareholders to cash out now, patience is recommended because the new company could be the next title contender.
