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(Bloomberg) -- A faceoff is unfolding between Silver Lake Management and event-driven hedge funds over the private equity firm’s bid for Endeavor Group Holdings Inc., the Beverly Hills talent agency backing the WWE and UFC — and the winner may be decided in court.
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On the one side is Silver Lake, which announced an agreement in April to buy out Endeavor’s minority investors at $27.50 a share. It already has a 71% voting stake in the talent shop led by superagent Ari Emanuel, and its involvement with Endeavor stretches back more than a decade.
On the other side are sophisticated traders at firms including Westchester Capital Management, who have piled into Endeavor stock in a bet they’ll get an even higher deal payoff — pushing the share price past the buyout offer. Their rationale has to do with Endeavor’s controlling interest in TKO Group Holdings, the parent of the popular wrestling and mixed martial-arts leagues, which has surged more than 70% since Silver Lake announced its bid.
By traders’ logic, the rally in TKO’s shares means Endeavor is worth more, and so that justifies a sweetened offer. But on Monday, Silver Lake stated it would close the deal on current terms this month. It also criticized hedge funds that have speculated on the deal, accusing them of causing “an artificial increase in the stock price.”
Undaunted, many investors are sticking to their wagers, eyeing various legal pathways including what’s known as “appraisal rights” that could trigger a process for winning a higher valuation. This in part explains why Endeavor’s stock price, even after declining some after Silver Lake’s statement, remains above the $27.50 buyout offer.
Silver Lake’s move this week “strikes us as a scare tactic to try to shake out weak or unsophisticated holders,” said Roy Behren, co-chief investment officer at Westchester Capital Management, which runs the $2.3 billion Merger Fund. “We are prepared to exercise our appraisal rights on behalf of our investors, and to pursue this as long as it takes, given how blatantly unfair the deal price is to minority shareholders.”
Data compiled by Bloomberg shows that Troluce Capital Advisors LLC, Pentwater Capital Management, Millennium Management LLC and LMR Partners LLP are among hedge funds that held sizable Endeavor positions as of the end of December.