With less than two weeks until PointsBet shareholders were to consider another offer for the company’s U.S. business, DraftKings has submitted a $195m all cash offer to acquire the operations, a move seen by analysts as an attempt to block an incoming competitor.
Late on Friday (June 16), PointsBet’s Australian owner confirmed receipt of an unsolicited non-binding proposal from DraftKings to acquire their U.S. business. The deal represents a 30 percent premium over the existing $150m bid by Fanatics.
In a statement to the Australian Stock Exchange late on Sunday, PointsBet said it had considered the DraftKings offer along with its advisors and determined that the higher bid could "reasonably be expected" to be a superior proposal.
"To this end, PointsBet (with the assistance of its financial and legal advisers), will now engage with DraftKings on the DraftKings Proposal," the company said.
Confirming months of speculation, PointsBet announced on May 15 it was selling its U.S. business to Fanatics Betting and Gaming, which shareholders were scheduled to vote on during a June 30 meeting.
“While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the United states, we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business,” Jason Robins, DraftKings’ CEO, said in a statement.
In a letter delivered to non-executive chairman Brett Paton and Group CEO Sam Swanell at PointsBet in Australia, Robins acknowledged the Fanatics offer but said he believed the DraftKings bid constituted a superior proposal due to the value it delivers to shareholders and the ability to close the deal more quickly.
Robins said DraftKings expected to receive the customary regulatory approvals, including from state gaming regulators.
“As a licensed entity in all of the jurisdictions in which you operate the U.S. business, we believe that we are uniquely positioned to obtain the requisite regulatory approvals on a more expedient timeframe that under your existing agreement with Fanatics,” he wrote.
Robins added that the company's all cash offer would enable PointsBet to “return capital to its shareholders more quickly.”
Fanatics, however, described the offer as a “desperate” attempt by DraftKings to scuttle the prior deal.
“We are skeptical of the DraftKings proposal which seems like a desperate move to slow down Fanatics and PointsBet from completing the deal,” Fanatics' CEO Michael Rubin said in a statement. “They are using the majority of their projected year end cash just to block us.”
DraftKings has $1.09bn of cash at the end of the first quarter.
Joseph Greff, a managing director with J.P. Morgan, noted that DraftKings management had stated that the potential acquisition would not impact DraftKings ability to produce positive EBITDA in 2024, and could provide incremental positive EBITDA contribution in 2025.
PointsBet currently operates in 14 states, including Ohio, New York, New Jersey and Pennsylvania. The company reported third-quarter fiscal-year 2023 earnings on April 28, which included a total U.S. handle of $819.2m and a net win of $49.8m.
“While the potential transaction is small, perhaps the biggest benefit here is that DraftKings protects its market share and prevents a much smaller and relatively new U.S. online sports-betting entrant from establishing a platform to grow its position in the U.S. OSB market,” Greff wrote in a research note.
Barry Jonas, an analyst at Truist Securities agreed, saying the more meaningful benefit of the deal could be “hindering a large and credible incoming competitor.”
“With PointsBet’s board meeting on June 30, the question will be Fanatics’ response given their strong push into OSB, and how committed DraftKings is to a deal within the context of their more recent focus on profitability,” Jonas wrote in a note to clients.
DraftKings has used a mergers and acquisition strategy to expand before, most notably its $1.56bn acquisition of Tilman Fertitta’s Golden Nugget Online Gaming that closed in May 2022 to bolster its iGaming business.
The company also placed a $22bn bid for Entain in 2021, which Jonas also believes “may have been partially motivated to hinder its BetMGM competition.”
DraftKings eventually dropped its bid in October 2021.