Hollywood super-agent casts himself as deal star

Endeavor group

04/04/2024 15:50

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Jonathan Guilford
       NEW YORK, April 4 (Reuters Breakingviews) - Ari Emanuel
has provided himself with some excellent representation. The
Hollywood super-agent who runs Endeavor  EDR.N   made clear in
October his frustration over how shareholders were valuing the
entertainment hodgepodge, a problem that affected his paycheck.
A $13 billion sale to private equity firm Silver Lake takes care
of the matter, and then some.
    When Endeavor, whose WME agency counts everyone from Adele
to Zach Galifianakis as clients, went public three years ago, it
set up a compensation package for Emanuel tethered to market
whims. Beyond any cash bonuses for hitting profitability goals,
he was owed tranches of stock worth $26.5 million whenever
Endeavor’s stock price increased by a $4.50 increment. The share
price peaked north of $34 in early 2022, above two of those
milestones, before trouble struck.
    Actors and writers went on strike, grinding TV and movie
productions to a halt. A complicated deal to separate the
Ultimate Fighting Championship franchise and merge it with World
Wrestling Entertainment last year did little to help. Silver
Lake’s 55% premium will usher independent shareholders, whose
votes are marginalized by more powerful super-voting stock, out
of the mire. Emanuel also gets a haul, even though he’s sticking
around as CEO and rolling at least some of his Endeavor stake
into the buyout.
    Emanuel is in line for an equity award equal to 3% of
Endeavor’s market value, according to deal documents. Even
before factoring in options that are hard to value because of
their opacity, it amounts to about $280 million. Further, the
transaction contemplates possible asset sales, which would
trigger a $25 million cash outlay. Emanuel also secured a 2.5%
royalty on WME’s net profit, defined as adjusted EBITDA minus
capital expenditures and working capital changes. Using the
earnings generated by Endeavor’s talent representation business
as a guide, it would have been worth about $10 million to him
last year. Since it’s a recurring cash flow, put it on the same
13 times multiple recently paid to buy a majority of rival
agency CAA, and it’s worth nearly $130 million before taxes
today.
    All told, Emanuel is in line for as much as $400 million.
Some of the payments are contingent on various factors, and
WME’s net profit will be lower after adjustments, but he also
can force Silver Lake to buy him out at a pre-agreed price any
time after the deal’s two-year anniversary. The supporting cast
should benefit from the buyout in different ways, but Emanuel
has given himself star billing.
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    CONTEXT NEWS
Endeavor, the owner of Hollywood talent agency WME and a range
of other assets, on April 3 disclosed the specific terms of its
agreement to be acquired by private equity firm Silver Lake. The
deal, which values Endeavor’s equity at about $13 billion, was
unveiled on April 2.

 (Editing by Jeffrey Goldfarb and Aditya Sriwatsav)
 ((For previous columns by the author, Reuters customers can
click on  GUILFORD/  
Jonathan.Guilford@thomsonreuters.com; Reuters Messaging:
Jonathan.Guilford.thomsonreuters.com@reuters.net))