DraftKings Tests Waters With US$22.4 Billion Entain Bid

The consolidation of the gambling sectors continued with DraftKings making a takeover proposal to Entain Plc. DraftKings tested the waters with a US$22.4 billion stock and cash offer for the British gambling giant.

Entain, owners of partypoker and Ladbrokes, rejected a 2,500 pence per share earlier in the month. DraftKings returned with a 2,800 pence per share proposal last week. Entain published a statement to the London Stock Exchange.

Entain Confirms DraftKings Takeover Big

“Further to our earlier announcement and the recent media speculation, the Board of Entain confirms that following an earlier approach from DraftKings at 2,500 pence per share (the consideration of which comprised of a combination of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. Under the terms of DraftKings’ latest proposal, DraftKings would offer 2,800 pence per Entain share consisting of 630 pence in cash and the balance payable in new DraftKings Class A common shares. DraftKings proposed that the exchange ratio which would deliver the share element of the 2,800 pence per Entain share was to be fixed immediately prior to the first agreed public announcement. 2,800 pence per Entain share represented a premium of 46.2% to Entain’s closing share price on 20 September 2021.”

“The Board of Entain strongly believes in the future prospects of the company underpinned by its leading market positions, world-class management team, and industry-leading technology. The company has a strong track record of growth and a runway for further significant growth as set out in the capital markets day on 12th August, with the potential for its total addressable market to grow by more than three times to US$160bn. This includes its leadership position in the rapidly growing North American market through its Joint Venture BetMGM. Entain has the most diversified and regulated revenues of any of the global operators and leads the industry in player protection through its ARC programme (Advanced Responsibility and Care).”

“The Board of Entain will carefully consider the proposal and a further announcement will be made as and when appropriate. Shareholders are urged to take no action at this time.”

Any Bid Requires MGM Resorts Consent

Entain and MGM Resorts enjoys a fruitful sports betting partnership in the United States. The duo jointly run BetMGM. MGM is not involved with the DraftKings bid for Entain, but its consent is required for any deal involving Entain’s U.S. assets.

“Any transaction whereby Entain or its affiliates would own a competing business in the U.S. would require MGM’s consent. MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives.”

Entain’s share price surged approximately 18% following the news. However, they closed 7.4% lower by the close of trading in London.

It is easy to see why DraftKings is keen on the Entain deal. Entain has licences in 27 countries across five continents, allowing DraftKings to rapidly expand its business. However, MGM will not let Entain go without a fight. Furthermore, it is unlikely to want a sports betting rival to have 50/50 control over its own U.S. operations. It could find itself starved of funding as its bitter rival expands its own operations.

Other Possible Deals

There are several possible routes for this takeover deal. MGM buying Entain’s share of the BetMGM business is one. This option allows DraftKing to acquire Entain’s non-US operations. This is the most likely option because MGM has US$5.6 billion in cash and US$9.9 billion in liquidity. It has the funds to make a deal happen.

DraftKings purchasing MGM is another option worth considering. It is unlikely due to the sheer amount of cash and stock it is offering to get its hands on Entain.

A larger MGM bid for Entain is unlikely. MGM expressed an interest in Entain earlier this year and bid US$11 billion. Both companies are similarly sized so this makes this option less likely.

The US$22.4 billion offer could be a blessing in disguise for MGM because everything points towards it acquiring all of BetMGM, and at a potentially discounted price. DraftKings desperation to buy Entain could be beneficial for MGM.