- Benchmark analyst Mike Hickey downgrades World Wrestling Entertainment, Inc (NYSE:WWE) from Buy to Hold.
- On Monday, Endeavor Group Holdings, Inc (NYSE:EDR) announced plans to merge its UFC subsidiary with WWE and form a new global live sports and entertainment company.
- They look to list the new company on the NYSE as TKO, worth an estimated $21 billion, with EDR owning 51% and WWE owning 49%.
- TKO’s implied FY22 EV/AEBITDA multiple is approximately 21x, consisting of WWE and UFC at an estimated 24x and 19x, respectively.
- Mike estimates TKO’s implied FY26 EV/AEBITDA multiple is an approximately 13x, consisting of WWE and UFC at an estimated 12x and 14x, respectively, based on an adjusted consensus view that does not include a presumed synergy-boosted media rights opportunity and cost synergies.
- The re-rating reflects WWE’s target valuation, which included an aggressive target multiple based on the potential sale of the company and a meaningful step in domestic rights fees.
- The WWE share price has returned an impressive 43% TTM compared to the S&P, which was down 9%.
- EDR’s share price performance has been less impressive, declining by 24% TTM.
- The analyst remained cautious of EDR’s valuation of TKO as aggressive, and the all-stock and somewhat complex transaction were disappointing versus a cash deal consideration.
- He did not anticipate new bidders. The all-stock valuation was competitive and likely achieved WWE’s target valuation and Chair Vince McMahon’s blessing.
- Revenue synergies include opportunities to increase live events, grow sponsorship and licensing revenues, and capitalize on media rights and new advertising opportunities, with both organizations nearing the expiration of the media rights deals.
- Price Action: WWE shares traded higher by 8.71% at $97.08 on the last check Tuesday.
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