The sale of WWE for a stated $9.3 billion value to UFC parent Endeavor Corp. is almost 30% greater than the highest market capitalization the wrestling company has ever seen. No one makes out better than Vince McMahon, whose shares in the company are worth more than $3 billion at the deal valuation, enough to place him firmly on the Forbes 400 list of America’s richest people.
The problem is, Wall Street doesn’t agree.
McMahon owns 28.75 million shares of WWE, mostly in a supervoting class of shares that will convert to regular equity when the deal closes. The result is McMahon, WWE’s controlling shareholder, will own about 19% of the yet-to-be-named merger of UFC and WWE. Endeavor will own 51% of the business.
In a presentation to investors Monday, Endeavor says the deal values WWE at $105.98 a share. At that price, McMahon, 77, should be worth $3.047 billion. Normally, when an acquisition is announced at a premium, shares jump to close to the deal price—or even higher if traders expect a better offer to come along.
The problem is, WWE shareholders have sold off the company after the news, with WWE down as much as 9% Monday before closing down 2% at $89.30, a 16% discount to the stated deal valuation. That means McMahon’s WWE stake is worth $2.57 billion—$477 million less than Endeavor says he should be worth.
For the list-conscious among us, that level probably isn’t enough for Vince to make the Forbes 400, the long-watched barometer of American business success. In fact, with the sell-off on the deal, McMahon’s wealth is $110 million less than it was in January, at the peak of investor enthusiasm for his search for strategic alternatives.
Why the shortfall? LightShed analyst Brandon Ross tweeted Monday: “investors disagree with the combined value set by the bankers in the transaction. To state the obvious.”
There are probably a handful of reasons for this. One is that investors likely were hoping for an all-cash deal to make a clean profit. Investors generally don’t like to end up owning a business they didn’t want to own (which is a reason spinoffs often fall in value, for instance).
Another reason may be that the premium of 16% to the last WWE share price before the news is well below a more typical 28% or greater premium seen in arms-length acquisitions.
A third factor could be that WWE shareholders will find themselves holding the bill for Endeavor’s purchase of UFC. WWE’s long-term debt is a very low $20.9 million, and when you add in cash and equivalents, WWE doesn’t have any debt at all. Meanwhile, UFC comes with a dowry of $2.74 billion in long-term debt, which moves with the MMA league to the new company, according to the investor presentation.
Still, for now, McMahon’s surprising return from a six-month retirement to guide WWE to a sale has paid off: WWE shares are about $8 higher than their November peak without the elder McMahon in charge. But that price may continue to decline in the months it will take to close the creation of the new company. Ultimately in an all-stock deal, the value isn’t what Mr. McMahon says it is; it’s Mr. Market’s.
Said LightShed’s Ross in another tweet: “Headline numbers on ‘valuation’ of UFC and WWE in deal are irrelevant…. Market will decide value of newco.”