DraftKings has proposed a $22 billion cash and stock takeover of Entain, the companies confirmed Tuesday.
The bid was first reported by CNBC’s David Faber, and later verified by both companies.
Entain said it rejected an initial offer from DraftKings at 2,500p per share, and DraftKings came back last week with a 2,800p offer.
That works out at a $20.5 billion valuation for Entain.
Around a quarter of that price would be paid in cash, with the rest in DraftKings stock
DraftKings said it could not comment further thanks to the UK takeover code.
What we know so far about DraftKings bid for Entain
The price tag marked around a 46% premium to Entain’s closing share price on 20 September.
Entain said its board would consider the proposal and a further announcement would be made as appropriate.
What’s in it for DraftKings?
Third Bridge analyst Harry Barnick said the bid indicated DraftKings’ willingness to “go head-to-head with Flutter owned FanDuel.”
As Faber noted, it makes sense for DraftKings to acquire aggressively with its stock so richly valued.
It could also potentially benefit from valuation arbitrage. That is, Entain’s revenues might command a higher multiple on the US stock market than in the UK.
Online gambling expertise
DK also gains access to the online gambling expertise embedded in the Entain business.
That experience is arguably one of the key edges BetMGM and FanDuel currently have over DraftKings.
Entain, while known for sporting brands like Ladbrokes and Coral, is now more of an online casino leader, according to Eilers & Krejcik analyst Alun Bowden.
DraftKings could certainly use more of that expertise in-house, even after acquiring Golden Nugget Online Gaming.
What happens to BetMGM?
Entain owns half of BetMGM, alongside MGM. It also provides the online betting and gaming technology to the joint venture.
Would MGM allow a key rival to own half of its US sports betting business. Or could it buy out BetMGM?
That looks like an option. MGM said in a statement that having control of BetMGM was an important strategic objective.
The casino giant also said it would have to give its consent to any deal whereby Entain would own a competing business in the US.
There will be M&A lawyers
“MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives,” MGM said.
A secondary transaction could make sense if DraftKings is simply after the Entain revenues and talent rather than the technology. DraftKings already owns proprietary sports betting tech.
In that case, DraftKings could take a leaf out of the Caesars/William Hill playbook and sell off some assets it does not want. Entain is a sprawling operation with gambling licenses in 27 countries, and 24,000 staff across five continents.
Defensive acquisition?
Eilers & Krejcik analyst Chris Grove suggested DraftKings was making a defensive play.
“[This] feels like a blocker bet,” Grove wrote. “Tons of value destruction if you’re DK. But you probably get a nice rebate selling the JV interest back to MGM. Regardless of what anything thinks, you have to admire the sheer audacity and the fact that DK is in the position to make this offer at all.”
Recall, MGM tried to buy Entain earlier this year for around $11 billion, but Entain said that bid “dramatically undervalued” it.
It has been proven spectacularly correct.
How the market reacted
Entain’s share price was last up 16.6% to 2,240p. That’s a fraction below the reported 2,500p offer price.
DraftKings stock was down 4% to $54.64.
Representatives from DraftKings had not returned requests for comment at time of writing.
