With Endeavor filing paperwork to go public in the not too distant future, the UFC’s future became inextricably tied to its parent company. Then again, it may be looking at its own IPO as well.
Embedded in the lengthy S-1 documents which details the finances of the soon-to-be publicly traded company on the New York Stock Exchange was language which indicates that the UFC could go public itself.
— Jason Cruz (@dilletaunt) May 24, 2019
Via Endeavor’s S-1:
Our control of UFC is subject to certain consent rights held by other equityholders of UFC, whose interests in UFC may be different than ours and yours, and the terms of the preferred units issued as partial financing for the UFC Acquisition contain negative covenants that may limit our ability to pursue our business strategies with respect to UFC.
The bold is my outline of the language may allow for a UFC file IPO.
In addition, the UFC LLC Agreement also contains provisions relating to an initial public offering of UFC, which provide that (i) prior to February 18, 2019, an initial public offering of UFC may be requested or approved by at least one director designated by each of us, Silver Lake Partners and KKR, (ii) after February 18, 2019 but prior to August 18, 2021, an initial public offering of UFC may be requested or approved by at least one director designated by each of us, Silver Lake Partners and KKR, provided that a request or approval by any two of the directors designated by each of us, Silver Lake Partners and KKR is required if the valuation in the offering achieves a specified valuation, provided that the approval of the director designated by us is required under all circumstances prior to August 18, 2021, so long as we hold a majority of the equity entitled to appoint directors of UFC, and (iii) after August 18, 2021, any of us, Silver Lake Partners or KKR, subject to certain ownership requirements, may exercise a demand right with respect to an initial public offering without approval by us or our director designees. Any initial public offering undertaken pursuant to the UFC LLC Agreement must be completed in accordance with the agreement and could be dilutive to our ownership position in UFC. The demand rights granted pursuant to the UFC LLC Agreement may require UFC to undertake an initial public offering at a time or on terms that are not in your best interests, and such a transaction could adversely affect the value of our investment in UFC.
Since a limited liability company does not sell shares in itself (LLC’s have ‘member’ interests), the UFC, LLC entity would convert into a corporation.
The above language from the Endeavor S-1 suggests that a UFC IPO may not be in the best financial interests of the parent company, Endeavor. However, based on the ownership interests outside of Endeavor, it may have to comply if the company receives a specific valuation. Remember, the S-1 gives all of the prospective investors all of the information and risks of the company. So, you might believe that Endeavor does not want the UFC to go public on its own, but its only a preventative warning in the case someone were to allege that they were led astray by the information.
While Endeavor states it has a majority stakeholder interest in the UFC (50.1% to be specific), the UFC LLC Agreement contains provisions for the company to file for its own IPO based on approval from enough directors. The first two provisions require director approval. But, the last provision (i.e., iii) states that after August 18, 2021, a demand may be made to a UFC IPO without approval by directors.
The language seems to protect the lenders in the original UFC sale, Silver Lake Partners and KKR. One might infer that the reason to go public would be to raise money from the sell of shares. One has to believe that if a demand were to be made, the market conditions would reflect an opportunity to capitalize on a public willing to purchase a piece of the UFC.
The UFC as a publicly-traded company would indeed be an interesting scenario considering that Dana White doesn’t want to go public. But, that may not be up to him.
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