When a company is acquired, it’s common for stock prices to skyrocket as the acquiring company pays a premium for shareholder approval.
Rarely does a company publicly announce that it is for sale and its stock price jumps significantly on the news. this is, world wrestling entertainment (WWE -0.18%)shares have risen 31% over the past few weeks.
Investors looking to make quick money may think it might be a good time to dive in, but there’s more to it than meets the eye. Here are two reasons why investors should discount the world’s largest professional wrestling company.
1. Acquisition price may already be priced
Unlike most markets, WWE’s stock price has skyrocketed over the past year, increasing by 70%. Some of that profit could be attributed to a recession-proof business model. That’s because WWE gets the majority of the revenue, comcast, foxWhen disney.
These license agreements for the property, including NXT, raw, smackdown, and WWE Network generate approximately 80% of the company’s total revenue. Most of those deals are set to expire in 2024, and the new deal he expects to be done in mid-2023.
A by-product of WWE’s upcoming television deal is to become a front-runner for acquisition. This is because WWE and other sports licensed television deals have a long history of increasing with each new deal.
Partners like Fox paying over $1 billion over 5 years smack downlicensing rights under the current deal could potentially save money in the long run by buying WWE outright.
To further amplify acquisition rumors, the company recently announced that it has hired outside advisors to “support the review of strategic alternatives.”
So the market knows all too well that WWE appears to be for sale. Before this news broke, WWE was trading at around $70 a share, and now he’s trading at $90 a share. Therefore, even if a company were to acquire WWE, the sale price would not be significantly higher than its current price.
2. Leadership question mark
One of the issues that could delay a WWE acquisition begins and ends with longtime CEO Vince McMahon. For the uninitiated, McMahon revolutionized the professional wrestling industry by turning what was once a localized promotion into a global corporation.
But last year, the company discovered McMahon made unrecorded payments of about $15 million to multiple women for alleged sexual misconduct, and paid $5 million to Donald Trump’s now-defunct foundation. As a result, McMahon resigned last July and may be subject to an SEC investigation for unrecorded payments. McMahon will repay WWE for these payments. I agree with you.
McMahon, 77, has been out of the wrestling business for six months, but finally returned to WWE last month, becoming chairman of the board with 81% voting power, shaking up the company’s board in the process. I was. .
McMahon, who has a uniquely high voter turnout, will have the final say on whether the company will be acquired or remain an independent company. His behavior of hiring outside firms and his desire to avoid SEC scrutiny point to a potential sale.
But McMahon needs to find a company willing to do business with him and, if he wants, allow him to remain CEO of the company where he has held leadership roles for more than 40 years. is needed.
Current partners with a more family-friendly image, such as Comcast, Disney and Fox, may be hesitant to buy WWE if McMahon stipulates it will retain control. Saudi Public Investment Fund (at two events) pays WWE about $100 million a year) and effort (Owner of mixed martial arts company UFC) may be more willing to keep McMahon to run the company, which is now valued at $6.6 billion.
Is WWE Buying?
The stock has outperformed for a long time, even before rumors of a WWE acquisition began. S&P 500Still, based on the market price of the premium for a potential takeover and McMahon’s controversial past, WWE is a riskier purchase than it appears on the surface.
Look for definitive news on potential acquisitions in the next six months.
Colin Brandmeyer has held positions at Walt Disney and World Wrestling Entertainment. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool U.S. Headquarters recommends Comcast and World Wrestling Entertainment and recommends the following options: The Motley Fool’s U.S. headquarters has a disclosure policy.