As PointsBet shareholders prepare to vote on Fanatics‘ proposed acquisition of the company’s U.S. assets later this week, a late effort from DraftKings to derail the nascent sportsbook’s bid fell through on Tuesday night.
DraftKings missed a 6 p.m. Melbourne deadline on Tuesday to make a binding proposal for PointsBet’s U.S. division, the Australian-headquartered company announced. As a result, PointsBet’s board unanimously recommended Fanatics Betting and Gaming’s (FBG) improved proposal of $225 million for its U.S. assets, the company said in a statement.
“The Board unanimously supports the improved proposal from Fanatics Betting and Gaming, which provides a superior price plus certainty,” said PointsBet Chairman Brett Paton in the statement. “Fanatics Betting and Gaming conducted their diligence process and negotiations in a highly professional manner at all times. The offer to ‘front end’ the additional consideration is an element which we regarded as a welcome and significant benefit to our shareholders.”
In mid-June, DraftKings entered the fray with a non-binding $195 million proposal for the division, one that represented a 30% premium over Fanatics’ $150 million binding proposal in May. Officials from DraftKings and PointsBet held last-minute negotiations on Tuesday but could not come to terms on a binding agreement, The Action Network reported.
The news comes approximately 48 hours before PointsBet is scheduled to host a general meeting on Friday morning in Sydney (Thursday night, New York time). At the meeting, shareholders will be asked to approve FBG’s amended binding agreement to acquire PointsBet‘s U.S. assets.
A defensive move?
From Fanatics’ standpoint, one of the major drivers for the proposed acquisition is market access.
As of Tuesday, Fanatics offered online sports betting on a limited basis in four states: Tennessee, Ohio, Massachusetts, and Maryland. PointsBet, meanwhile, is live with online sports betting in 14 states, potentially unlocking access for Fanatics in places like New York, Illinois, New Jersey, Michigan, and Pennsylvania.
If approved, the initial phase of Fanatics’ acquisition is set to take effect on Aug. 31, when Fanatics will gain the right to acquire the entities that own and operate PointsBet’s business in at least three states.
Since DraftKings informed PointsBet of its non-binding proposal in mid-June, some industry analysts have questioned its motives. One leading analyst, JMP Securities’ Jordan Bender, noted that DraftKings could benefit from the “cross-sell between the product offerings,” additional in-house trading capabilities, and synergies from overlapping fixed costs. At the same time, he emphasized that DraftKings would effectively “box Fanatics out” of the online sports betting space in the near term.
— NY Post Business (@nypostbiz) June 23, 2023
Last week, the New York Post reported that DraftKings and Fanatics held deep negotiations in 2021 on a proposed $48 billion merger. After talks fizzled, DraftKings CEO Jason Robins began his pursuit of PointsBet, possibly as a way of “returning the favor,” an unnamed sports betting executive told the Post.
In a written response, DraftKings told the Post that its bid for PointsBet was centered on “significant synergies and financial rationale,” as well as enhanced product and technological capabilities.
Earlier on Tuesday, the Australian Stock Exchange halted trading on PointsBet at the request of the company, pending a possible announcement. PointsBet currently trades at A$1.63 a share, representing a market capitalization of A$500.5 million.
Shares in PointsBet have jumped more than 17% since the announcement of Fanatics’ proposed U.S. takeover in May. With the increased cash consideration, the PointsBet board estimates that the distribution of capital will be in the range of A$1.39 to A$1.44 per share.
Fanatics’ proposal requires at least 50% approval from shareholders who take part in Friday’s vote.