Investors cheered as TKO Group Holdings, the new parent company of UFC and WWE, clambered into the Wall Street ring.
Shares of TKO, which began trading Tuesday on the New York Stock Exchange, closed up 2.4% on the day, to $103.05 per share after opening at $102.
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Meanwhile, Endeavor’s stock rose 1.1%, to $22.16/share, as investors reacted to the company’s move to carve UFC off into TKO. Endeavor properties include WME, IMG and the Professional Bull Riders (PBR), among other media assets. The gains came amid declines for major market indexes including the S&P 500 (-0.57%) and Nasdaq Composite (-1.04%).
Endeavor holds a 51% controlling interest in TKO and previous WWE shareholders hold 49%, including a 16.4% stake owned by WWE founder Vince McMahon. With the launch of TKO, WWE shares ceased trading on the NYSE, with a final closing price of $100.65/share on Monday.
Initially, TKO will be fully focused on integrating the operations of WWE and UFC, Mark Shapiro (who is president/COO for both Endeavor and TKO) said in an interview with Variety. “We’ll keep an eye on potential strategic pocket acquisitions, but we’ve got our work cut out for us. We’re highly focused on the integration, and we’re not going to get sidetracked,” he said. Eventually, though, Shapiro said TKO could be in the market for M&A deals to acquire additional MMA or wrestling properties.
With the close of the TKO transaction, Shapiro received $6.25 million in TKO Class A common stock vesting in one year, while Endeavor CEO Ari Emanuel (who is also CEO of TKO) received stock grants worth $40 million vesting over a four-year period.
After the stock debuted Tuesday morning, Seaport Research Partners media analyst David Joyce initiated coverage of TKO with a “buy” rating and a 12-month price target of $114/share.
“We have been writing with enthusiasm about the combination of Buy-rated Endeavor’s UFC and Neutral-rated WWE to form the new TKO Group Holdings that just started trading,” Joyce wrote in a Sept. 12 research note to clients. “We like the 10%+ long-term EBITDA CAGR (with synergies) that we think can be realized from providing each company with more scale in order to leverage into incremental global fan engagement, media rights fees and event volumes.”
Endeavor expects the TKO deal to yield $50 million to $100 million in annualized run-rate cost synergies, and has touted potential revenue growth for the combined entity through “domestic and international media rights, ticket sales and yield optimization, event operations, global partnerships, licensing and premium hospitality.” Part of the cost savings presumably will come through layoffs at the WWE and UFC businesses.
Seaport’s Joyce believes TKO’s management will hit or exceed targets on revenue and cost synergies. “While we find more upside in [Endeavor] shares, the synergy, growth and potential future capital returns opportunity with TKO is intriguing,” the analyst wrote.
Cynthia Littleton contributed to this report.
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