WWE and the Endeavor-owned UFC will merge into a $21 billion entertainment company

In a statement released on Monday, WWE Inc (WWE.N) announced its intention to merge with Endeavor Group Inc (EDR.N), which owns the mixed martial arts franchise UFC, to create a new publicly listed entertainment company valued at about $21 billion.

‍

It's a deal that unites two of the biggest names in the world of wrestling and entertainment, as well as the conclusion of a months-long process for WWE to sell the brand. Vince McMahon, who returned to the company's board of directors in January, spearheaded the sale process.

Edenuel, CEO of Endeavor, said in a presentation to investors that this is a once-in-a-lifetime opportunity that will combine two leading pure-play sports and entertainment companies. The CEO described the deal as an "essential step" for Endeavor.

‍

While maintaining his role at Endeavor, Emmanuel said he would leverage Endeavor's expertise in securing media deals, sponsorships, and new forms of distribution to lead the new company, which he will lead as chief executive officer while continuing to perform his duties at Endeavor.

‍

With a 51% stake in the new company, Endeavor will own a majority stake in it, and the rest will be owned by WWE investors. However, McMahon will still play a significant role in the company.

‍

With the acquisition of Endeavor, the Hollywood power broker Emanuel has transformed Endeavor, which has its roots in representing film and television talent, into a sports and entertainment powerhouse with more than 20 acquisitions under its belt. Among his investments are bull riding events, fashion shows, and tennis competitions such as the Miami Open and Madrid Open.

‍

A spokesperson for Endeavor said that the company will use the same playbook it used with the UFC, the world's largest martial arts organization, in order to optimize operational efficiency, negotiate lucrative media deals, and strike licensing agreements. There has been an impressive increase in the UFC's revenue of more than one and a half times since 2017, and the company's adjusted EBITDA has doubled since Endeavor purchased a controlling interest in the company in 2017. A buy-out of the remaining shareholders was carried out by Endeavor in 2021.

‍

The newly created company would try to capitalize on consumers' desire to participate in live experiences - a trend that has resumed since the height of the pandemic - as well as on their appetite to bet on sports, as stated by Endeavor President Mark Shapiro, who will serve in the same capacity in the new company as well.

‍

As part of the deal, which a source told me was internally referred to as Project Stunner, UFC, and WWE will also contribute cash to the new company, which means that it will hold approximately $150 million in cash.

‍

There is a premium of 16% to the company's Friday closing price, which gives WWE a value of $9.3 billion based on the agreement, which values each share of WWE at $106, representing a premium of 16% to Friday's closing price.

‍

WWE shares were down 6% in early trading, while Endeavor shares were up 0.3% at the same time. It has been suggested by some analysts that WWE investors might have been disappointed that this transaction was not a cash transaction.

‍

"It could be that the final structure of this did not align with their short-term thinking about how it was going to work in the long-term," says John Healy, an analyst at Northcoast Research.

‍

A new company will be listed on the New York Stock Exchange under the ticker symbol "TKO" under the new company's name, the companies have announced.

‍

Shortly after Vince McMahon's return to WWE in January, WWE announced it would be exploring all strategic options, including the possibility of selling the company.

‍

In July last year, McMahon resigned as the chairman and CEO of the company after an investigation into allegations that he has engaged in misconduct. Stephanie McMahon, the co-CEO who took over the company after her father left, resigned a week after he returned in January after he had run the company on her own for a while.