DraftKings submitted a cash-and-stock proposal to acquire UK-based Entain plc, the board of Entain confirmed on Tuesday.
While the Entain board confirmed that the proposal includes a combination of DraftKings stock and cash, Entain did not disclose financial terms of the proposal. According to CNBC, which first reported the news on Tuesday morning, it’s a $20 billion proposal from DraftKings for the UK gambling conglomerate.
The news comes after Entain rejected an all-stock acquisition attempt from MGM Resorts in January that valued the company at $11 billion. Entain, which owns a 50% stake in BetMGM, a sports betting and online gaming joint venture with MGM Resorts, said in January that the offer “significantly undervalue[d] the Company and its prospects.”
“There can be no certainty that any offer will be made for the Company, nor as to the terms on which any such offer may be made,” Entain said in a statement Tuesday as it confirmed DraftKings had submitted a proposal. Entain’s announcement was made without the consent of DraftKings.
DraftKings, meanwhile, confirmed that a proposal has been sent to Entain.
Under the U.K. Takeover Code, the company cannot provide any further comment at this time, a DraftKings spokesman told Sports Handle.
Battle for market share
While the proposal from DraftKings represents about 2,500 pence per Entain share, the proposal is largely in DraftKings stock, CNBC reported. The specifics of the cash-and-stock mix were unclear as of Tuesday morning, CNBC added. By comparison, MGM Resorts’ proposal represented a value of 1,383 pence per Entain share and a premium of 22% to Entain’s share price, based on its closing price on Dec. 31, 2020, the company said in a January statement.
In April, BetMGM said it expects to achieve $1 billion of net revenue from operations in 2022 amid continued state-by-state expansion of the U.S. iGaming and online sports betting markets. In the three months ended February 2021, BetMGM reported an iGaming and sports betting market share of 23% in the states it operated in, according to the joint venture. With strong momentum from both divisions, BetMGM projected long-term U.S. market share of approximately 20-25%.
The two sportsbook operators, DraftKings and BetMGM, both maintain an estimated U.S. sports betting market share of about 20%, according to a September research note from Macquarie analyst Chad Beynon. A third operator, FanDuel, also maintains a market share of around 20%, Macquarie analysts wrote in the note. Ironically, all three have joined forces as a consortium, along with Bally Bet, in a bid to receive a mobile sports betting license in New York.
Entain shares spiked more than 20% on Tuesday’s news, reaching a session-high of 2,400 pence on the London Stock Exchange.
wow. Entain up 20% on CNBC report on Draftkings offer… pic.twitter.com/pK8io4Buv2
— Matt Monks (@MattMonks123) September 21, 2021
In outlining its rationale for making a bid to acquire Entain, MGM Resorts argued that the company would position itself as a global gaming leader by significantly bolstering its online and retail channels outside the U.S. Entain, a European gaming giant, owns prominent brands such as bwin, Sportingbet, Ladbrokes, and Coral on the sports betting side, as well as Partypoker on the iGaming side. MGM Resorts also sought to gain full control of Entain’s end-to-end technology stack, a key component of BetMGM’s joint venture.
A potential acquisition of Entain would expand DraftKings’ footprint considerably outside the U.S. While DraftKings increased its 2021 full-year revenue guidance to $1.29 billion in August, the company reported 2021 second-quarter adjusted earnings per share of negative $(0.26). DraftKings still beat the Nasdaq consensus estimate of negative $(0.53).
One thing to note, especially assuming any acquisition is primarily stock, any deal would be accretive to $DKNG.
DraftKings consensus EBITDA of (-$590) million this year, versus +1.2B for Entain. Buying Entain essentially makes the pro-forma company profitable.
— Will Hershey (@maybebullish) September 21, 2021
DraftKings traded at $52.85 a share as of 10 a.m. ET on Tuesday, down about 7% on the session. DraftKings went public in April 2020, following the completion of its tri-merger with SBTech and Diamond Eagle Acquisition Corp. (DEAC), a special-purpose acquisition company.
Hours after CNBC’s report surfaced, MGM Resorts issued a statement regarding the proposal on Tuesday.
— Howard Stutz (@howardstutz) September 21, 2021
“Any transaction whereby Entain or its affiliates would own a competing business in the U.S. would require MGM’s consent,” MGM Resorts said in the statement.
DraftKings must announce a firm intention to make an offer for Entain, or announce that it does not intend to make an offer, by Oct. 19, in accordance with UK takeovers and mergers law, Entain said.