Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Most WWE enthusiasts reject the notion that the wrestling juggernaut would ever sell out to a larger entertainment house the way cage-fighting franchise UFC did this summer for some $4 billion. It can even be a sore topic for readers. They don't want to believe that Vince McMahon, a guy who survived being buried alive by the Undertaker, would relinquish his family's empire. 

But this week, he sold a ton of WWE stock.

McMahon converted 1.55 million of his Class B shares into Class A shares and sold them for "estate planning purposes." Those shares were worth more than $32 million as of Aug. 16 and they represent about 2 percent of WWE's total stock. McMahon still controls 85 percent of the company's voting power through the rest of his Class B shares and said he doesn't plan to sell any more and that he intends to remain chairman and CEO for the foreseeable future. Even so, this was no small move.

Power Rankings
Vince McMahon controls WWE through Class B shares, which receive 10 votes each, while Class A shares receive one vote apiece. His wife, who twice ran for a Connecticut Senate seat, owns some Class B stock.
Source: Company filings

See, there's Mr. McMahon, the WWE character. And then there's McMahon the 71-year-old CEO of a public company. That company operates in a changing entertainment-media landscape potentially on the verge of mass consolidation. 

McMahon's succession plan is thought to be that he will pass down the $1.6 billion company to his daughter, Stephanie McMahon Levesque, who is WWE's chief brand officer, and her husband, wrestler Paul "Triple H" Levesque, who's in charge of talent and live events. But that doesn't mean he won't sell the company, too. 

So what would it take to bring about the unimaginable, a takeover of WWE?

  1. Keep the family. It's not hard to imagine a scenario in which WWE gets acquired but Stephanie McMahon Levesque and Paul Levesque are left in charge of the business. It certainly wouldn't be an unprecedented move. Disney -- among the entertainment giants that would have use for the WWE franchise -- didn't tinker much with Pixar after it purchased the animation studio from Steve Jobs in 2006. Disney CEO Bob Iger kept Ed Catmull president of Pixar, while Jobs joined Disney's board and became its largest shareholder. A sprawling company like Comcast, which is another logical WWE suitor, could do the same. It'd be beneficial to have the faces of WWE who helped make it a success stay on at the company. As for the family, they'd get a nice chunk of change from a sale and would have access to deeper pockets to ensure WWE keeps growing. But to get the family on board it'd take...

  2. A knockout price. So here's the thing with an asset like WWE. You can drill down into financial metrics such as revenue growth and profitability all you want, but the fact is that WWE's scarcity value is what really matters. It has developed an incredibly loyal following. The "Raw" and "SmackDown" shows together attracted 4.8 million viewing households on average weekly in the second quarter. That was down from a year ago, but it also reached 1.52 million average paid subscribers (up 25 percent) for its online streaming service, WWE Network, which launched two years ago. The annual WrestleMania event that was held in April drew a record 101,763 fans. And it has a massive library of characters and story lines that can't be recreated.

    Tuning In
    WWE's Raw on Monday nights is consistently among the most-watched shows on cable TV, even if its ratings have slipped slightly this summer. Here are the top five for the week of Aug. 8:
    Source: Nielsen


    UFC sold in July for more than 6 times revenue. It was proof that WWE, which is currently valued at about 2 times sales, could command a hefty premium for shareholders, including the McMahons. WWE would also attract a much wider group of suitors than the more violent cage-fighting business. A takeover offer for even double WWE's current market value would still be small beer for the larger speculated buyers. 

  3. Commitment to WWE Network. WWE, being the smaller, nimbler business that it is, embraced internet-delivered content much more quickly than some of the big TV network owners, even amid fear that the app could cannibalize its traditional programming. The McMahons would need to know that having WWE tucked into a larger company wouldn't mean that its cash flow gets sent up the food chain without continuing to invest in the service. (By the way, WWE Network is powered by BAMTech, the company ESPN's parent Disney just bought a 33 percent stake in for $1 billion.)
Still Growing
WWE may have a niche audience, but it continues to find a way to generate more sales.
Source: Bloomberg

No one -- at least not publicly -- has made a run at WWE yet. But if it were to explore a sale, there would be plenty of interest, and this checklist is hardly a non-starter for potential bidders.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net