WWE - Endeavor rises as Morgan Stanley reiterates overweight after WWE deal

2023-04-04 09:31:00 ET

Endeavor ( NYSE: EDR ) shares rose nearly 2% in early trading on Tuesday as investment firm Morgan Stanley reiterated its overweight rating on the company following its proposed deal to merge its UFC unit with WWE ( NYSE: WWE ).

Analyst Benjamin Swinburne, who also has a per-share price target of $30 on Endeavor ( EDR ), said the deal will not only give it a 51% interest in the new public company, but it should help it de-lever its balance sheet and increase its free cash flow conversion.

"In acquiring WWE, Endeavor is acquiring a business it knows well from years of experience servicing WWE as a client," Swinburne wrote in an investor note, adding WWE ( WWE ) has a similar business model to UFC.

"These factors increase our confidence in the company's ability to execute operationally on the acquisition," Swinburne continued. "When viewed in the context of WWE's adjusted corporate EBITDA loss of ~$130mm, the $50-100mm of synergies Endeavor has targeted appears conservative."

The analyst also noted that the transaction structure gives Endeavor ( EDR ) control of WWE ( WWE ) using UFC as the currency, valuing it at an enterprise value of $12.1B, or roughly $20 per share.

However, when the media rights deals for both UFC and WWE ( WWE ) are renegotiated, the enterprise value-to-adjusted OIBDA multiples drop to between 12 and 13 times and 16 and 17 times, respectively down from prior multiples of between 19 and 20 and 21 and 22 times, respectively.

The new combined company of UFC and WWE is a "uniquely attractive asset," Swinburne added, given that it will have roughly $2.5B in revenue and $1.05B in adjusted EBITDA in 2023. It will also have a net leverage ratio of roughly 2.2 times and should be "highly cash generative," allowing it to pay down debt.

Prior to the deal, WWE's ( WWE ) CEO Nick Khan said that the sale process had seen "robust" interest from prospective buyers .

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