2023-03-17 05:09:15 ET
Summary
- The WWE is for sale and there are several companies rumored to want a piece of the action.
- We look at a few of the options since WWE is profitable and would be an interesting tie-in to many of these companies.
- From an arbitrage perspective, there's an opportunity here with a $6.2B valuation and a $9B target acquisition price.
World Wrestling Entertainment ( WWE ) is for sale and given the strong financials, steady stream of operating profits, cash flow and potential synergies with a buyer - it's a very compelling purchase to whichever company ends up with it.
The rumor is the company is seeking up to $9B - so given shares trade closer to a $6.2B valuation, there's certainly some upside here from an investment perspective.
Before we get into ranking the takeover targets, let's examine the WWE's business for the past year to see where the revenue comes from.
The WWE is a really strong business on the revenue and operating profit side. Clearly the media/TV revenue is the prize, which makes a takeover somewhat more complicated. Comcast is rumored to be paying the WWE close to $500M to broadcast and stream WWE's content. That could make a sale to separate media company slightly less likely as it's believed Comcast's streaming deal lasts into 2026.
Endeavor Group Holdings ( EDR )
This is the perfect match for WWE. Endeavor already operates the UFC, which is similar to the WWE from an operational standpoint when it comes to talent management, venues, Pay-Per-View and licensed television. Additionally the UFC tends to be a bit edgier than traditional sports and would fit nicely with the WWE brand and existing fan base. There's even been crossover with athletes such as Ronda Rousey, so there's likely some synergies between the two brands from an athlete perspective.
Likely the only thing keeping Endeavor from closing a deal is financing. The company's balance sheet isn't a thing of beauty, that's for sure.
The company has shed about $1.2B off the asset side of the balance sheet over the past year. Most of the $2.5B that is left is either cash or receivables. That's not the real issue. The liabilities are.
The company has $2.4B in current liabilities and a whopping $5B+ in debt. Over the past 12 months alone the company has paid $282.3M in net interest expense. Imagine (somehow) bolting on another $9B in debt to fund a WWE buyout, and I just don't think it's possible.
Certainly a private equity backer, or potentially partnering with a media company could make sense given Endeavor has the expertise to run the WWE's event business, while a well capitalized media company could monetize the television side.
Comcast ( CMCSA )
From a media perspective, Comcast is a perfect fit considering WWE is already airing on Comcast networks. Unlike Disney, which needs to think about how it's perceived, Comcast could acquire the WWE with less of a worry about brand image.
Comcast's largest problem is similar to many on this list. The financing is a hurdle when Comcast reported earnings in Q4 the company had just $4.7B in cash balanced off by over $93B in debt. On the positive side, the acquisition would mean Comcast wouldn't have to pay the WWE for the content rights making it immediately accretive to Comcast.
Walt Disney ( DIS )
Disney loves content and acquiring the WWE could make some sense. The company could comfortably distribute the live events, monetize the legacy content, license the merchandise, and advertise against the content.
However, the WWE's somewhat edgy and macho content wouldn't exactly jive with Disney's "inclusive" image it tries to portray; although the company does regularly air UFC matches on ESPN+.
Disney has also just recently gone through a management shakeup and activist investors were poking around the company. CEO Bob Iger pledged to bring the dividend back while laying off thousands. Buying the WWE would likely be the signature event of Bob Iger's latest tenure, and I'm not sure that's how he wants to go out.
Netflix ( NFLX )
Netflix buying the WWE would be the most interesting from an investment perspective. Most of these companies either own a property like the UFC or have business units that are so large, a $7-$9B acquisition isn't super transformative.
For Netflix it would be. The $1.3B+ in revenues would be more than a rounding error on Netflix's $31.6B in revenue it produced last year. Additionally it would potentially give the streamer a stickiness it doesn't have as many shows are "binged watched" whereas the WWE's content could potentially be streamed live.
It would also be an interesting use of Netflix's stock - which is often seen as overvalued. Assuming the company raises some of the acquisition price using the stock, it could be a good use of the shares.
Amazon ( AMZN )
An outright purchase of the WWE would be somewhat odd for Amazon. The company doesn't really have any significant experience in live events, however the streaming side would make sense. On the bright side, WWE's operating profit of $283M+ would actually be recognizable on Amazon's P/L given the fact the company doesn't print large amounts to the bottom line.
The Saudi's
Certainly plausible, but the least interesting from an investors point of view.
The Opportunity
There's certainly an arbitrage opportunity buying WWE shares today, hoping for a buyout premium and cashing in once the deal is announced. You'd have to factor in short-term capital gains tax... which would chew up some gains. It was believed back in February that the process could take 3 months , meaning a deal could be announced soon.
The secondary opportunity is investing in the buyer of the WWE, especially if the stock trades down on the news. Financing is challenging at the moment, but the WWE is a profitable business that also pays a dividend. There's likely many costs that can be eliminated over a short period of time that improves the economics of any deal.
Final Verdict
The ideal buyers for the WWE would be Comcast and Endeavor going in as partners with Comcast controlling the media and Endeavor running the live events. For investors, the most interesting would be Netflix since it's a transformative transaction from a product perspective.
Either way, the big winners will likely be WWE shareholders. Shares are up 44% over the past year and if a buyout is announced soon - it allows investors to go out on top.
For further details see:
Ranking The WWE Buyout Options