How Will DraftKings Spend $1 Billion From Latest Debt Offering?

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DraftKings stock dipped 4% on Monday morning after the company announced plans to raise $1 billion in new debt.

The Nasdaq-listed firm will issue $1 billion of Convertible Senior Notes to institutional buyers.

DraftKings will also offer initial buyers a 13-day option to purchase an additional $150 million of notes.

The interest rate on the debt will be worked out privately. And the notes can be settled in cash or stock, DraftKings said.

Why is DraftKings raising more cash?

In a statement, DraftKings said the cash would be used for “working capital and general corporate purposes.”

That includes “M&A and products or technology investments that DraftKings may identify in the future,” the company said.

Interestingly enough, DraftKings already had plenty of cash on the balance sheet. At its Q4 results in late February, the company had $1.8 billion in net cash.

Does that mean the company is eyeing a major transaction?

What could DraftKings buy?

DraftKings has not been shy about its M&A ambitions.

At the recent investor day, CEO Jason Robins was asked about potential targets. He listed three areas of interest:

However, Robins stressed the M&A strategy was “more opportunistic than anything else.”

“If we see good opportunities we’re going to go after them,” he added. “But we’re also going to stay very disciplined and only do deals if they’re the right ones because we
really don’t feel like we need anything at this point.”

The company has been linked in the past with media outlets like Bleacher Report, but could feasibly have a bigger target in mind.

“DraftKings acquiring a European operator in stock would make sense in theory,” Will Hershey, CEO of RoundHill Investments, said back in February. “That would be immediately accretive to earnings.”

Buy the dip in DraftKings stock?

Of course, DraftKings might just be taking advantage of a share price that has run up significantly since those Q4 results and investor day.

The company still burns through plenty of cash as it tries to build and hold market share in US sports betting. It posted a net loss of $266.4 million in Q4.

DraftKings stock was trading at an all-time high on Friday at around $73. As of Monday morning it was down 4% to $69.

Of course, the stock may have also been affected by news that FanDuel might be headed to a US exchange soon.