Praise from Wall Street analysts for plans to combine UFC with Worldwide Wrestling Entertainment failed to boost Endeavor Group Holdings’ stock early Tuesday, but sent WWE shares higher.
Shares of Endeavor Group wavered in morning trading after registering a 6% drop in the prior session following the announcement. The stock was down 5 cents in the morning session.
WWE shares, meanwhile, added $2.77, or 3.1%, to $92.07, after closing Monday down 2%.
The movements came as Wall Street took another look at its plans to combine UFC with WWE to form a new $21.4 billion live sports and entertainment company that will trade under the ticker symbol “TKO.” Expected to close by the end of the year, the deal will see Endeavor shareholders holding a 51% interest and WWE shareholders 49% of the new company.
Traders’ response to the announcement was “too bearish,” Citi analyst Jason Bazinet said in a note to clients, according to TheFly.com.
Bazinet wrote that some investors were likely looking for an all-cash offer rather than the all-stock deal the companies plan, but said that the stock sank too far. The remaining Endeavor company “may be the most mispriced,” the analyst wrote. He kept a “Buy” rating on both Endeavor and WWE shares.
Benchmark analysts also pointed to the structure of the deal as a concern for investors, noting “the all-stock and somewhat complex transaction was disappointing versus a cash deal consideration.”
Bank of America analyst Jessica Reif Ehrlich wrote that investors don’t appreciate the revenue opportunity from the combination of UFC and WWE, predicting that the companies could see more than $200 million in revenue synergies in the first 24 months, according to TheFly. That bankroll would be in addition to potential domestic rights benefits that could be extracted through new UFC/WWE packages, and also does not count as much as $250 million to $400 million in savings from overlapping costs within the two companies.
Ehrlich said the deal brings “knockout growth potential” for Endeavor Group and she kept a “Buy” rating on the stock.
Analysts at Roth MKM said the combination will create a “more attractive content driven growth story,” with double-digit top line growth potential. The research note also pointed to TV rights deals, which should drive “significant growth opportunities” in coming years.
Deutsche Bank analyst Bryan Kraft praised the deal and also kept a “Buy” rating on Endeavor. Kraft noted that the plan allows Endeavor to acquire WWE without any equity dilution and rather than taking on new debt will enable Endeavor to deleverage.
