Andrew Bary

Takeover arbitragers say they have rarely seen a situation like the one involving Endeavor Group Holdings, whose stock has rallied 13% in the past week and now trades at a 27% premium to its takeover price in hopes for a higher offer.

Endeavor shares ended Wednesday at $34.88, up 0.9%, after hitting a new 52-week high. That compares with the takeover price of $27.50 a share that controlling shareholder Silver Lake, the investment firm, agreed to pay public holders in a deal reached in April 2024. Most stocks subject to takeover deals trade at a slight discount to the deal price. The Endeavor deal is set to close in the current quarter.

Endeavor investors apparently are betting that Silver Lake will significantly boost its take-private offer for Endeavor even though Silver Lake recently told Barron's that it believes "the transaction price is fair and will not increase it." The deal has been OK'd by the Endeavor board.

Silver Lake didn't respond to a request for any further comment.

Endeavor, headed by superagent Ari Emanuel, operates a sports and entertainment management business but its most valuable asset is a majority stake in TKO Group Holdings, the owner of UFC (Ultimate Fight Championship) and WWE (World Wrestling Entertainment). Emanuel and other members of the management team plan to keep their Endeavor shares in the take-private deal.

TKO shares have nearly doubled since the Endeavor deal was struck and are up about 25% this year. TKO shares were down 0.4% to $175.79 Wednesday.

This has raised the value of TKO stock embedded in each Endeavor share to about $44, Barron's estimates. The total value of Endeavor could now be close to $50 a share.

That's a huge premium relative to the takeover price of $27.50 and the reason that large numbers of Endeavor shareholders likely filed for appraisal rights with Delaware courts. They will ask a judge to pay them more than $27.50 in proceedings that could take over a year. The deadline was Feb. 4. Some expected Endeavor stock to fall after that date since they may be stuck with the takeover price of $27.50, but Endeavor has gained along with TKO shares.

The situation is raising questions on Wall Street about what Silver Lake and management will do. In Delaware appraisal cases, the key date is the closing date, which is due to occur in the current quarter. It may be tough for Silver Lake to successfully argue that its take-private price is fair given the surge in TKO stock.

The thinking on Wall Street has been that Silver Lake would rather potentially pay more to those seeking appraisal rights than pay everyone more in revised price. But with the surge in TKO, it might be better for Silver Lake to offer $35 to $40 a share, below the current asset value of Endeavor, and try to get most big investors on board.

"Curious questions surrounding the EDR privatization and TKO ownership" was the header in a note from Seaport Research Partners analyst David Joyce on Tuesday. He noted that Silver Lake is buying TKO shares in the open market through a 10b5-1 plan that allows corporate insiders to purchase stock when they might not otherwise be allowed to do so.

And TKO is buying some Endeavor assets and issuing TKO stock to pay for it. That, Joyce wrote, will lift Endeavor's stake in TKO to 59% from 53%. There are about 198 million TKO shares outstanding. Each Endeavor share contained about a quarter of a share of TKO, we estimate.

There are an estimated 468 million shares of Endeavor outstanding. Silver Lake owns about 174 million and management including Emanuel 47 million, Barron's estimates based on a regulatory filing by Endeavor in January.

Joyce wrote that it's "surprising" that Silver Lake has been buying TKO, "the main valuation driver of EDR, despite the P/E firm sticking with its $27.50 offer while a majority of public float holders are moving forward into the appraisal process (we believe) and the higher TKO goes, the tougher becomes Silver Lake argument for a lower appraisal valuation. Market participants continue to scratch heads over this development," he added.

The Endeavor situation is curious and unusual as Wall Street awaits a possible move by Silver Lake, which is now sitting on a multibillion-dollar windfall from the rise in TKO stock.

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

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February 12, 2025 18:22 ET (23:22 GMT)

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