A group of former WWE shareholders filed suit Monday over the merger with Endeavor Group’s UFC, charging that the wrestling giant’s founder Vince McMahon and other board members “conjured up a sham sales process” to keep him in power and “exclude other bidders seeking [to] axe McMahon.”
WWE and UFC combined in September to form TKO Group in a deal that valued McMahon’s empire at $9.3 billion and UFC at $12.1 billion.
In the suit, filed in Delaware Chancery Court, former WWE shareholder Dennis Palkon, acting on behalf of other shareholders in a class action, claimed that the WWE board, which was controlled by McMahon, breached its fiduciary duty, or legal responsibility to act on behalf of shareholders’ best interests, by bowing to McMahon’s “domineering personality” to carry out his personal agenda “at the expense of the company’s public stockholders.”
TKO Group did not immediately respond to TheWrap’s request for comment.
News of the suit, first reported by Deadline, had little effect on TKO shares, which slipped 1.4% in morning trading to $78.12. Volume was light, indicating there was no rush to sell the stock, which is down 22% since the company was formed.
The suit alleges McMahon had “a long history of putting himself above the interests of WWE’s shareholders,” referring to the string of sexual misconduct allegations that led to him to step down from his post as CEO in June 2022. The court papers note that the board conducted an investigation of the allegations and found $15 million in payments made by McMahon to his victims, and refer to him as a “serial sexual predator.”
The suit goes on to note that six months after he stepped down, McMahon used his position as controlling stockholder to oust three WWE board members and replaced them with himself “and two of his cronies,” Michelle Wilson and George Barrios, which led to two other directors and McMahon’s daughter resigning from the board as well.
“As justification for his coup, McMahon claimed that it was “necessary”
for him to act as WWE’s Executive Chairman to oversee his desired strategic review process (i.e. a sale of the company),” the suit states. “In reality, McMahon was maneuvering to secure his power and control over the company in the face of mounting stockholder discontent and government investigations into his illegal predatory behavior.”
The announcement that the company would explore strategic alternatives was soon followed by McMahon contacting “his long time friend and Endeavor CEO Ari Emanuel, who McMahon knew would allow him to remain at the helm of the post-transaction company,” the suit alleges. “Thereafter, the WWE Board —which was controlled by McMahon— conjured up a sham sales process designed to favor Endeavor and exclude other bidders seeking [to] axe McMahon.”
The suit claims that WWE received a bid from Endeavor weeks before announcing a deadline for other companies to submit interest in the company. That put Endeavor “miles ahead of everyone else in the due diligence process,” the suit claims. “McMahon’s crony-filled Board would later seize on this unequal playing field to pretextually accuse the other bidders of showing ‘less enthusiasm and urgency.’”
The suit describes three additional bids beyond Endeavor’s offer for $88.43 per WWE share, one that valued the company at $95-$100 per share, a second cash offer for $90-$97.50 per share and a third at the lower price of $76.83 per share. But unlike the Endeavor bid, which would result in a combined company in which WWE owned 43% and UFC 57% of the business, the other bids were straight buyouts.
That means if the board accepted the higher bids, McMahon would have been removed, whereas with the deal with Endeavor, he became executive chairman of the new company, TKO Group.
The suit claims McMahon and “his board” negotiated exclusively with Endeavor rather than pursuing the higher-priced offers. “Not only did he secure a future for himself at post-merger WWE, McMahon also stuffed his pockets and those of his loyalists before agreeing to a deal,” it claims.
“Both the process and price of the merger were unfair to stockholders,” the suit alleges, stating that the final price “did not reflect the fair value of the company.”
In addition to McMahon, Barrios and Wilson, the suit also names former WWE CEO Nick Khan, former CFO Frank Riddick and two other former board members as defendants. Emanuel, who became CEO of TKO Group when the deal was finalized, is not listed.