Endeavor Lowers Estimated Share Price Ahead of IPO

Ari Emanuel at  Los Angeles LGBT Center's 48th Anniversary Gala Vanguard Awards - Getty - H 2018
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The company said it expects to price its shares to debut between $26 and $27, down from the $30 to $32 range it estimated last week.

Endeavor Group has lowered its estimated share price ahead of its initial public offering.

In a new filing with the Securities and Exchange Commission Thursday, the company said it expects to price its shares to debut between $26 and $27, down from the $30 to $32 range it estimated last week.

Accordingly, the parent of talent agency WME and the Ultimate Fighting Championship will raise well below the $600 million it originally forecast in an IPO roadshow video. The company is also reducing the number of shares offered to 15 million, down from 19.4 million.

"Based on an assumed initial public offering price of $27.00 per share (the highpoint of the estimated public offering price range set forth on the cover page of this prospectus), we estimate that the net proceeds from this offering will be $361.6 million (or $419.3 million if the underwriters exercise their option to purchase additional shares in full), after deducting underwriting discounts and commissions and estimated offering expenses payable by us," the filing said.

The widely watched IPO marks a new era in Hollywood, as it will require the talent-agent side of the business, WME, to disclose financial details that historically tight-lipped agencies would keep secret.

Plus, if successful, Endeavor's IPO could spur others, like CAA and United Talent Agency to someday follow suit, though those companies aren't yet as diversified as Endeavor, whose assets include Professional Bull Riders, the Frieze Art Fair, streaming delivery company NeuLion and the 160over90 marketing agency.

In Endeavor's pre-IPO filing, it reported $2.05 billion in revenue for the first six months of 2019 with operating income of $10.3 million and a net loss of $223 million.

Despite the red ink, co-CEOs Ari Emanuel and Patrick Whitesell, along with CFO Jason Lublin, Endeavor president Mark Shapiro, chief marketing officer Bozoma Saint John, human resources topper Kerry Chandler and others among the 7,000 employees across more than 20 countries should benefit to the tune of a combined $1 billion or so in equity due to the IPO.

Also set to profit are banks Goldman Sachs, J.P. Morgan, Morgan Stanley and more, as is Silver Lake, which became the first private equity firm to buy into Endeavor in 2012 and has amassed a significant, though still minority, stake in it since then.

In a video produced to entice investors during the IPO roadshow, Emanuel boasts of Endeavor's diversified business relative to other talent agencies. "You can be in the sports client representation business, but you're not going to be in the production, license, sales business. There's not enough of those pieces out there to come together as one element," he says.

Despite the lower share price, the IPO is a victory for Endeavor, as it comes during a months-long legal feud pitting WME, along with CAA, UTA, ICM Partners and Paradigm and the Association of Talent Agents, against the WGA, where 7,000 writers have ditched their agents over packaging fees, the practice of bundling elements of a TV show in order to boost agency fees while writers claim few benefits.

The WGA, through its media-relations arm, had attempted on numerous occasions to torpedo Endeavor's IPO until its members settle the issue over packaging fees and the multiple lawsuits back and forth between writers and agencies. On one occasion, the WGA told the SEC that Endeavor inflated its number of clients, while earlier it stated that "it is impossible to reconcile the fundamental purpose of an agency — to serve the best interests of its clients — with the business of maximizing returns for Wall Street."

Some economists disagreed, though, arguing that moving from a private to public structure has benefits for clients, employees and perhaps the entertainment industry in general. "Management (will) have loyalty to the company instead of the private-equity ownership," Eileen Appelbaum of the Center for Economic and Policy Research argued in April. "With private equity, you may think you're dealing with company management, but there's somebody behind the curtain pulling the strings."

In the IPO roadshow video, Lublin says: "We're going public to be more nimble and responsive for our clients and … to give us a capital and currency for M&A, which has and will continue to be central to our strategy."

Adds Emanuel: "I don't believe there's another platform like ours. I have competition in the advertising business, talent agency business and sports business, but they're all individual companies. … I'm way out in front of you by miles and miles."

Wall Street investors will determine the accuracy of such rosy sentiments when the stock starts trading soon on the New York Stock Exchange under the symbol "EDR."