February 23, 2024

Pension Fund Challenges $21.4 Billion WWE-UFC Merger

Pension Fund Challenges $21.4 Billion WWE-UFC Merger

World Wrestling Entertainment Inc. (WWE) and its high-profile leaders, including Vince McMahon, are facing a lawsuit launched by a pension fund that is contesting the company’s $21.4 billion merger with Ultimate Fighting Championship (UFC). The UFC, a mixed martial arts industry titan, is owned by media and talent conglomerate Endeavor Group Holdings Inc

The Laborers’ District Council and Contractors’ Pension Fund of Ohio, representing former WWE investors, filed the shareholder lawsuit in Delaware. The suit accuses McMahon of using his powerful influence within WWE to engineer an unfair transaction, leveraging his personality and control over the company. McMahon returned to WWE early this year after a six-month hiatus linked to allegations of sexual harassment and abuse of female staff.

McMahon’s Power Play and Alleged Favoritism

The lawsuit stipulates that McMahon, seeking to consolidate his power and control in the face of shareholder discontent and government investigations, rejected higher offers to favor a deal with his “longtime friend,” Endeavor CEO Ari Emanuel instead. This deal would ensure McMahon’s continued reign over his wrestling empire. 

The suit continues to argue that a WWE board filled with McMahon loyalists formulated a sham sales process that was designed to favor Endeavor and exclude other potential bidders intending to remove McMahon from power.

The merger, finalized in September, resulted in former WWE investors holding a 49% stake in the new parent company, TKO Group Holdings Inc., an Endeavor subsidiary. The deal was allegedly finalized at Wrestlemania 39 in April, five months before its official close.

Existing Board Members Also Under Scrutiny

The lawsuit also implicated other board members at the time of the deal, including McMahon’s son-in-law Paul Levesque (known professionally as Triple H), a retired WWE champion, and company president Nick Khan. McMahon and Khan currently sit on the TKO board, with McMahon serving as executive chairman.

Neither WWE, Endeavor, nor TKO have responded to requests for comment as of Monday, and only WWE has been named as a defendant.

McMahon’s History of Litigation

This is not the first time McMahon has faced a legal challenge in Delaware’s Chancery Court, a leading forum for M&A disputes in the US. The current lawsuit marks the fourth round of shareholder allegations against the wrestling mogul in recent years.

Previous legal battles included disputes over WWE’s licensing deals with Saudi Arabia. They alleged financial entanglements between McMahon, his wrestling business, and a brief XFL minor league football organization revival in early 2020, just before the COVID-19 pandemic.

Most recently, WWE investors sued the company and McMahon over his return to WWE in January when he allegedly replaced certain board members with his allies. Those lawsuits, which incorporated claims of harassment and hush money, were dropped after McMahon reimbursed the company $17.4 million.

Allegations of Unfair Process and Price

The pension fund lawsuit argues that McMahon used his majority stake in WWE to push the deal through without holding a shareholder vote or setting up an independent board committee, leading to an unfair process and an unfair price.

The lawsuit also criticizes other terms of the transaction, including the financial analyses used to justify the price, multimillion-dollar payouts to Khan, Levesque, and former chief financial officer Frank Riddick III, and a services agreement with Endeavor that had little to do with the broader transaction. 

According to the lawsuit, TKO’s stock price dropped from over $103 on the day of the merger to $78.50 as of November 24, below the lowest of the all-cash bids.

This lawsuit was made public on November 22 after being filed under seal on November 17. An associated lawsuit was filed under seal on November 20 by Dennis Palkon, one of the shareholders who sued over McMahon’s return to WWE.

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