Andrew Bary

A group of big investors may ask the courts to grant it more than the current takeover price for Endeavor Group Holdings, given a sharp rally in its most valuable asset, a majority stake in the company that owns Ultimate Fight Championship and World Wrestling Entertainment.

It is also possible that Silver Lake, the tech investment firm that reached a deal to take Endeavor private in April, could boost its offer for Endeavor, which is led by CEO and Hollywood agent Ari Emanuel. The deal is expected to close in the current quarter.

In a statement to Barron's, however, Silver Lake said: "We believe the transaction price is fair and will not increase it."

Silver Lake, which holds a controlling stake in Endeavor, agreed to buy the company for $27.50 a share, or $13 billion, in a deal in which Emanuel and other members of Endeavor management would retain stakes in the company. Public investors would be cashed out at $27.50 a share.

Wall Street appears to be banking on the possibility of an increase in the offer for Endeavor. The stock was up 0.5% at $31.06 on Friday afternoon.

Citi analyst Jason Bazinet wrote in December that the move in Endeavor stock above the deal price reflects investors' view that the offer may have to rise. He wrote that he agrees with that assessment and boosted his price target to $32 a share.

The key to the issue is that Endeavor owns just over half of TKO Group Holdings, which owns the UFC and WWE sports entertainment businesses. Since the deal was struck in 2024, TKO Group stock has risen just over 50%. It gained 7% to a record closing high of $153 on Thursday.

That stock move has lifted the value of Endeavor's stake in TKO Group by more than $5 billion. Endeavor owns roughly 106 million shares of TKO, a stake now worth more than $15 billion, or about $35 a share, Barron's estimates, based on a count of about 465 million shares.

Endeavor also has other assets, including the talent agency WME, that could be worth another $5 a share or more. That could bring the total value of Endeavor to around $40 a share, about 50% more than the takeover price of $27.50.

Roy Behren, the co-president of Westchester Capital, which runs the $2.3 billion Merger Fund, says his firm, which holds Endeavor stock, is seriously considering seeking so-called appraisal rights in Delaware. Other holders specializing in mergers and special situations could do so as well. There are several hedge funds with holdings in Endeavor, including Millennium Management.

Regulatory disclosures by Endeavor indicate the deadline for submissions is Feb. 4.

Appraisal rights can be exercised by investors when they believe that a takeover price is insufficient. The process involves asking the Court of Chancery in Delaware to rule on the fairness of an offer, and to adjust the price if necessary.

They generally aren't sought by institutional investors because of the cost, and because the process can take two to three years. Those hurdles are even more discouraging for individual investors. In addition, the Delaware courts have been showing greater deference toward companies in judging the adequacy and fairness of deal prices.

An appraisal can break both ways. The courts can find that investors are entitled to the deal price, or an amount more or less than that, as Endeavor noted in a recent filing.

Still, the Endeavor situation could be a favorable one for appraisal-seeking investors. For starters, the Delaware courts have determined that fair value for appraisal purposes be based on the closing date of the merger, and not the signing date, accordin g to a 2022 article by Skadden Arps lawyers Jenness Parker and Andrew Kinsey.

This would tend to favor those seeking appraisal because the current value of Endeavor is more than it was in April 2024.

Another plus for investors is that Silver Lake didn't allow a shareholder vote by public holders in the deal, a step that is considered to be good corporate governance. A favorable vote by public holders helps a company show that a deal price is fair.

Media mogul John Malone, for instance, has included such provisions in deals in which he is the controlling holder. One example is the current deal for his Liberty Broadband, which is being bought by Charter Communications.

One benefit for those seeking an appraisal is that an acquiring company is required to pay interest on an investor's stake from the time of deal closing until the case is resolved. That rate, at five percentage points above a key short-term rate, is about 9% now.

Offsetting that is a Delaware court ruling from 2016 that allowed companies to pay those seeking appraisal the deal price at closing. The result is that interest in these situations would be owed only on any difference between the deal price and the court-mandated price.

The clock is ticking as the deadline for filings nears. Silver Lake could try to defuse the situation by bumping up the price it will pay public holders of Endeavor.

Write to Andrew Bary at andrew.bary@barrons.com

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January 24, 2025 15:26 ET (20:26 GMT)

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