DraftKings tables $22.4bn takeover proposal for Entain
Stock and cash offer propels Entain’s share price to all-time high as MGM wades in to protect joint venture agreement
DraftKings sent shockwaves through the gambling industry on 21 September with a $22.4bn (£16.4bn) takeover offer for FTSE 100 operator Entain.
After CNBC broke the news of an initial approach by DraftKings at £25 per share, Entain informed the market of a second increased bid at £28 per share, which caused its shares to leap by more than a quarter to a record high of 2,490p and its market cap to rise above £14bn.
The latest offer represented a premium of 46.2% to Entain’s closing share price as of 20 September. DraftKings now has until 19 October to submit a formal offer, under City rules.
The Entain statement read: “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 runway for further significant growth as set out in the capital markets day on 12 August, with the potential for its total addressable market to grow by more than three times to $160bn.
“This includes its leadership position in the rapidly growing North American market through its joint venture BetMGM.
“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.”
Entain’s share price has climbed a further 7% in early trading on the London Stock Exchange after rising 19% on 21 September. DraftKings dropped around 8% to $52.50 on the Nasdaq in wake of the announcement.
DraftKings’ surprise offer for Entain comes nine months after Entain’s board rejected an £8.1bn takeover bid for the company from MGM Resorts, its partner in the US joint venture, BetMGM.
Back in January, the board said the offer significantly undervalued the company and its prospects. At $20bn, DraftKings’ offer is significantly higher than the $11bn MGM tabled, although Entain’s market cap was around half what it stands at today.
MGM moved quickly to address the speculation and comment on the future of BetMGM.
The casino giant said in a statement: “MGM is Entain’s exclusive partner in the US online sports betting and igaming market through our highly successful 50/50 joint venture BetMGM.
“As a consequence, any transaction whereby Entain or its affiliates would own a competing business in the US would require MGM’s consent.
“MGM’s priority is to ensure that BetMGM continues to capture the growing US online opportunity and realising MGM’s vision of becoming a premier global gaming entertainment company.
“MGM believes that having control of the BetMGM joint venture is an important step towards achieving its strategic objectives.
“MGM will engage with Entain and DraftKings, as appropriate, to find a solution to the exclusivity arrangements which meets all parties’ objectives,” it added.
From a strategy perspective, this potential DraftKings deal for Entain poses more questions than answers, besides DraftKings swallowing one of its main US rivals.
Feels like a blocker bet. Tons of value destruction if you’re DK. But you probably get a nice rebate selling the JV interest back to MGM …
Regardless of what anything thinks, you have to admire the sheer audacity + the fact that DK is in the position to make this offer at all. https://t.co/yIcyAfWZFq
— Chris Grove (@OPReport) September 21, 2021
According to Eilers & Krejcik Gaming estimates, the big three – FanDuel, DraftKings and BetMGM – currently control around 73% of the national online market.
BetMGM has made up tremendous ground in the past 12 months and is now online in 15 US states with a 22% national market share, including a 30% market-leading position in igaming, according to Entain.
Meanwhile, Entain, which has 100 licences across 27 countries, has racked up 22 consecutive quarters of double-digit online growth to hit online net gaming revenue of £1.59bn in H1 2021.
With its in-house technology supported by a tech workforce of 3,000, Entain processes two million bets daily though its platforms across brands including Ladbrokes, Coral, bwin, Foxy Bingo and partypoker.
Arguably, biggest loser of DK-Entain combination would be MGM. Details scant, but MGM would appear to lose access to leading sports and casino tech stacks, Entain's ops and marketing knowhow, and a partner with whom to share risk in a hyper-irrational US online gambling market.
— Chris Krafcik (@ckrafcik) September 21, 2021
DraftKings’ play could be about capitalising on Entain’s igaming prowess seeing as the vertical accounts for the majority of the company’s NGR and it churns out a significant supply of in-house content.
DraftKings produces its own games in-house, which now total 60, and recently snapped up casino-centric US operator Golden Nugget Online Gaming in an all-stock deal that valued the business at $1.56bn.
The firm has also been migrating its sportsbook from Kambi over to an in-house platform it acquired as part of the $3.3bn three-way merger with SBTech and a special purpose acquisition company (SPAC).
How acquiring Entain impacts these deals, as well as the logic of these acquisitions in hindsight, is unclear at this stage.
So far, DraftKings has not made any formal announcement regarding its proposed takeover of Entain.