Wanda Sports Group (WSG) – Going Private – 11% Upside

Current Price: $2.25

Offer Price: $2.50

Upside: 11%

Expected Closing: TBD

Press Release

 

Wanda Sports Group has received a non-binding privatization proposal from its parent Wanda Sports & Media at $2.50/share. The buyer owns 72% of economic interest and 91% of the voting power. Funds will be provided by the buyer's affiliates or other parties - the parent itself is facing well-publicized liquidity problems. On the 6th of October, an independent committee was formed to consider the transaction.

WSG has recently closed the sale of Ironman business and it is likely that the remaining Infront business (sports media agency) during normalized times is worth significantly more than the current enterprise value of the company. Disclosures in reg fillings are very limited and the business itself is hard to understand, so I am basing this purely on the assessment by VIC article - Infront was acquired by Wanda in 2015 at $1bn and has grown since, whereas the current offer values the whole company at c. $600m (Infront + some other smaller businesses). If that is the case, then the buyer is getting a bargain by cashing out minority shareholders and should be well incentivized to close the transaction. However, after management screwed up so badly with the Iroman sale, it is just hard to guess what their true intentions with this offer are.

There are three main risks here:

  • The offer is still in the non-binding stage, which indicates higher risk and an unclear (potentially quite extended) timeline.
  • The company is incorporated in Hong Kong, which means that conditions should include: approval from 75% of total shares and not more than 10% of the disinterested shareholders objecting to the transaction. So a very small blocking stake (although there is no shareholder that can reject the proposal singlehandedly) is a major risk here.
  • Finally, as mentioned above management of WSG are not really credible and it's unclear whether they will proceed with this offer. The recent sale of Ironman business ended up with far lower net proceeds than initially expected and unexplained disappearance of almost $100m in cash.

Pre-announcement price stands at $1.80/share (20% downside). Worth noting, that it is likely an absolute bottom for the stock as these levels were reached during the time a lot of sporting events are suspended/postponed and right after it became clear that the above mentioned $100m+ cash has mysteriously disappeared somewhere in the Ironman sale proceeds and net working capital adjustments. Thus, the actual downside if the transaction fails (especially if it fails due to shareholder rejection) could be much lower than that. Additionally, there is optionality from the potential price increase and recovery of the sporting events business until the definitive agreement is signed/rejected.

 

Background

Wanda Sports Group (WSG) is part of the giant Chinese malls & entertainment conglomerate Dalian Wanda Group (DWG). After extensive overseas investments and accumulated debt, DWG was put on a watchlist by the Chinese regulators in 2017. Since then, it went on an asset sale streak - sold hotel and tourism assets for $9bn in 2017, a stake in a Spanish soccer club, and a stake in movie theater chain AMC ($600m). The most recent divestment was the WSG's Ironman triathlon business, which the company sold for $730m earlier this year at the worst possible time, during the COVID outbreak (with all sporting events suspended).

Ironman sale resulted in €350m net proceeds for WSG. Despite that, the company's net debt has changed only about €254m, while the remaining cash simply vanished without explanation. On the Q2 conference call, two analysts asked management about this, however, not only that the CFO was unable to explain it, but his answers made it look like he is completely clueless about the business he's running. You can find the call here and its Q&A section is very well worth the listening to (not only reading) if you want to see a prime example of incompetent management.

After the Ironman Group sale this year (July), the remaining business of the company is Infront Media - a sports media agency. Infront has contracts with large sports events like the Olympics, FIFA World Cup, FIBA Basketball Cup and operates on a cyclical basis. It provides media distribution across international online and broadcasting platforms, management of event venue's hospitality arrangements, placement of ads at event venues, platform development (apps, websites, gamification, etc.) services, etc.

More background can be found this VIC write-up and the latest commentary.

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