.svg)
Body
Entain confirmed on Tuesday that DraftKings had approached the company with a $22.4bn proposal to acquire the group, but U.S. partner MGM Resorts quickly warned both companies that any deal requires its approval first.
“MGM is Entain’s exclusive partner in the U.S. online sports betting and iGaming market through our highly successful 50/50 joint venture BetMGM LLC,” the Las Vegas-based gaming company said in a statement released shortly after Entain confirmed reports of an approach from DraftKings.
“As a consequence, any transaction whereby Entain or its affiliates would own a competing business in the U.S. would require MGM’s consent.”
Entain shares rose 18 percent Tuesday after the companies confirmed that Boston-based DraftKings had made a surprise offer for the London-listed operator.
The proposed offer in cash and equity was first reported to be worth around $2obn by the business news network CNBC in New York.
In a statement on Tuesday evening, however, Entain said an initial DraftKings offer of 2,500p per share was rejected and the Boston-based company returned with the latest proposed offer made on September 19 of 2,800p per share, about a quarter of which is payable in cash and the remainder in newly-issued DraftKings shares.
Entain said it would “carefully consider the proposal.”
That price, about a 45 percent premium on Monday’s closing price, would dwarf the $11bn offer by MGM which was rejected in January by Entain.
MGM still has designs at least on Entain's stake in the U.S. BetMGM venture, with CEO Bill Hornbuckle telling a JP Morgan investor forum earlier this month that “we do critique ourselves for giving up 50 percent of the business.”
On Tuesday, MGM said in its statement that the company “believes that having control of the BetMGM joint venture is an important step towards achieving its strategic objectives.”
MGM also said it would engage with both Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements regarding BetMGM which meet all parties’ objectives.
Truist Securities analyst Barry Jonas said he could see DraftKings' approach for Entain as a positive for MGM if the Nevada company was able to walk away owning 100 percent of BetMGM.
“While MGM could still offer a competing bid for all of Entain, we think it makes more sense for them to just buy Entain’s 50 percent share of BetMGM,” Jonas wrote in a research note. “MGM owning all of its online business would be a clear long-term positive, in our view, though price would obviously be an important factor.”
Entain stock rose to 2,261 pence per share, an all-time high for the parent company of the Ladbrokes, Coral, bwin and PartyPoker brands. In contrast, DraftKings shares lost $4.23, or 7.42 percent, to close at $57.22. per share on the Nasdaq.
Entain shares rose almost a further 10 percent on Wednesday morning in just the first 10 minutes of trading on the London Stock Exchange.
MGM shares lost 72 cents, or 1.74 percent, to close at 40.55 on the New York Stock Exchange.
In its statement, Entain said there was “no certainty” a concrete offer for the company would be made. Under UK regulations, DraftKings would need to make a formal offer by October 19.
News of DraftKings' bid for the co-owner of one of its main rival brands took the investment community and wider industry by surprise.
“Nobody saw this coming, but always expect the unexpected,” said Gavin Kelleher, an analyst with Dublin-based Goodbody. “If someone had said to me last night, tomorrow someone will make a bid for Entain, I would have been 95 percent sure it was MGM.”
DraftKings has a $23bn market capitalization, even though it lost $844m last year on revenue of $615m. It has a No. 3 market share in U.S. online sports betting and casino, behind Flutter Entertainment's FanDuel and BetMGM.
Last month, it announced plans to acquire online casino specialist Golden Nugget Online Gaming for more than $1.5bn in an all-stock deal.
One executive at a major UK gambling operator suggested that DraftKings’ logic could be that is already has a huge market capitalization, but was spending millions on marketing and losing hundreds of millions.
Entain is profitable, has steady cash flow from its Ladbrokes and Coral retail operations, and it would be a cheap deal for DraftKings if it could pull off a mostly-shares transaction, the executive said.
The wild card is whether it would then be in a joint venture with a rival in MGM, he said.
“That’s one interesting combination of things going on,” the executive said.
Analysts at Regulus Partners said it was easy to see the appeal of Entain for DraftKings: the combined company would generate $6.8bn in annual revenue “with a much lower dependence on the ‘economically unproven’ dynamics of the US market.”
But “somewhat scarily”, a combined DraftKings and BetMGM would probably still lose money at current U.S. cash-burn rates, Regulus said.
Analyst Ivor Jones of Peel Hunt said that the “strategic sense” of the deal for DraftKings would be “global reach and a market-leading technology platform, along with the cash flow to drive growth globally.”
For shareholders, the key point would be the percentage of cash in the deal, he said.
Jones said he lowered his recommendation for Entain to “hold” from “buy”, given the price rise on Tuesday.
Truist Securities' Jonas similarly said benefits for DraftKings would include acquiring a profitable company at a significant discount to its own current share price, while gaining an ability to fund U.S. growth with international cash flow.
“Still, it’s unclear to us how the market would value a more complex DraftKings/Entain NewCo, with the majority of revenue/EBITDA coming from Entain and its relatively lower-growth international markets,” Jonas added.
The deal would be part of a flood of betting mergers and acquisitions.
Caesars Entertainment this year paid £2.9bn for William Hill, and earlier this month, 888 Holdings agreed to pay £2.2bn for William Hill’s non-U.S. operations.
Additional reporting by James Kilsby.
