DraftKings' formal bid for Entain expected to be over $22 billion, but will require MGM approval

Entain And DraftKings Kick The Can Down The Road, Will Be In Talks Until Nov. 16

DraftKings had until noon EST today to make good on its offer to buy Entain, which owns half of online casino market leader BetMGM. However, just before 11 a.m., DraftKings and Entain both released statements revealing that Entain has extended that deadline by nearly a month. The two will now remain in negotiations until Nov. 16.

A statement posted by DraftKings on the London Stock Exchange this morning read:

“DraftKings will continue to engage in discussions between both companies and to conduct more substantive due diligence and analysis regarding its possible offer. DraftKings looks forward to exploring potential benefits that could derive from this possible combination for its and Entain’s shareholders, including:

  • Expansion into regulated and regulating markets
  • Accelerated product growth
  • Innovation in new and existing verticals.

DraftKings further notes that while it progresses its discussions with Entain, it also continues to remain very focused on opportunities in the high growth North America market.”

Stock in both companies dropped about $1 when news of the extended deadline hit. While there’s been some skepticism among analysts about whether such a deal will happen, the deadline extension suggests that Entain hasn’t already made up its mind against the possibility.

Industry insiders are closely watching the possible deal

Rumors started circulating on Sept. 20 that the US online casino and sportsbook leader’s reported $20 billion bid for Entain couldn’t be sustained.

However, Entain issued statements on Sept. 21 saying it rejected the lower bid, but DraftKings had until today to come through on its Sept. 19 proposal for the higher bid:

“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.”

Entain’s closing price on Sept. 20 was $26.30. Adding a 46.2% premium brings the share price to $38.45. The Motley Fool calculated that DraftKings bid of its shares and cash at $22.4 billion.

Predictably on Sept. 21, after Entain’s statements were loaded onto the London Stock Exchange site, Entain’s shares skyrocketed nearly 31% to $34.40.

By Oct. 15, shares leveled off a bit to $28.80. At 11:10 a.m. today, Entain stock was selling for $30.01.

The deal requires BetMGM approval

MGM Resorts International owns the other half of BetMGM. MGM’s leaders have gone on the record about how keeping BetMGM is a company priority.

On Sept. 21, MGM released a statement about DraftKings’ Entain bid:

“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 realizing MGM’s vision of becoming a premier global gaming entertainment company.”

On Oct. 14, Rich Duprey wrote for Motley Fool that a DraftKings acquisition of Entain would be an advantage for MGM, because it could pay less to buy Entain’s half of BetMGM than it would’ve had to pay to buy all of Entain.

During the company’s Oct. 12 earnings call, Entain CEO Jette Nygaard-Andersen wouldn’t comment on the DraftKings bid. However, she did gush about BetMGM’s performance, saying it was the No. 1 US online casino and sports betting operator in August in the markets in which it operatesd Overall, BetMGM had a 26% market share and 32% of the iGaming market. That makes BetMGM is No. 1 in online casino, she said. Nygaard-Andersen expects more than $1 billion net gaming revenue from BetMGM in 2022.

Does DraftKings have the money to acquire Entain?

Duprey notes that one problem with the DraftKings bid for Entain is that the amount it’s offering is higher than its own valuation.

What’s worse is DraftKings’ stock value dropped since news went public that it wanted to acquire Entain. On Sept. 20, DraftKings stock closed at $57. On Oct. 18, it was $49.18.

As of 11:32 a.m. today, DraftKings stock was trading at $48.62.

Plus, DraftKings is acquiring Golden Nugget Online Gaming (GNOG) for $1.56 billion, in an all-shares transaction.

So it’s possible DraftKings could even lose the GNOG deal if its stocks lose enough value, wrote Travis Hoium for The Motley Fool on Oct. 6.

Hoium said:

“Despite being a major player in online gambling in the US, DraftKings needs to perform flawlessly and keep investor confidence to reach its potential. After the Entain offer, we’re starting to see some cracks in the company’s acquisition strategy and the stock is falling as a result.”

- Heather Fletcher is the lead writer with OnlinePokerReport. She's a career journalist, with bylines in The New York Times, Adweek and other publications. Reach her at [email protected]
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