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As many major acquisitions deals as we’ve seen in the US lately, Entain seems to want no part in it.
Despite the company having allowed DraftKings an extension on its deadline to make a formal offer, none will be forthcoming. DraftKings announced today its decision not to do so, “following further analysis and discussions with the Entain board of directors.”
Jason Robins, DraftKings’ CEO, co-founder and director of the board, explained the decision as follows:
“After several discussions with Entain leadership, DraftKings has decided that it will not make a firm offer for Entain at this time. Based on our vertically-integrated technology stack, best-in-class product and technology capabilities and leading brand, we are highly confident in our ability to maintain a leadership position and achieve our long-term growth plans in the rapidly growing North America market.
There’s not much more to the statement than this. However, reading between the lines of the final part of Robins statement, it seems likely that Entain told DraftKings much the same as it did MGM Resorts International during that company’s takeover attempt, which began late last year.
Part of the issue on that attempt was that the valuation implied by MGM’s offer was too low in Entain’s eyes. However, it also told MGM that its major stakeholders didn’t see any strategic upside to combining the companies.
Aside from their joint venture, BetMGM, Entain doesn’t appear to have designs for the North American market. By the same token, it seems to be of the opinion that American companies should stay in their lane and not try to extend their reach into European markets where they have no prior experience.
DraftKings had attempted to address the former concern by making an offer twice as big as MGM’s. Based on their respective trading prices at the time, MGM’s offer valued Entain at $11 billion. Although that represented a 22% premium on its share value prior to the offer, Entain said that MGM “significantly undervalued” its future potential.
Shareholders seemed to agree. Entain’s price jumped from around $15.60 to $19.60 when it expressed its disdain for that first offer. They’ve continued to rise steadily since, hitting about $27.00 even before news of a potential DraftKings offer got out.
That doesn’t seem to have been the concern this time around, at least for shareholders. Entain stock surged on the news and DraftKings’ plummeted, suggesting a consensus that DraftKings would be paying too much. Its initial informal offer was reported to be around $20 billion, and its follow-up was a bit north of $22 billion.
As a deal looked less likely, both companies’ stock crept back towards their prior values. Upon today’s news, Entain’s stock plunged about 11.5% before partially rebounding and is currently down 5.9% on the day as of this writing. American traders have had less time to react at this point but DraftKings stock was already up more than 6% in pre-market trading and has continued to rise since the market opened.
If it wasn’t the price that was wrong this time, then it’s probably the case that Entain genuinely doesn’t have much interest in forming a mega-corporation spanning the European and American markets. Or, if it does, it wants to be the one calling the shots.
By UK law, DraftKings may now not make any bid for Entain for a period of six months. There are a few technical exceptions to this. These include making a counter-offer in the event that another company attempts to acquire Entain.
What happens next for DraftKings is probably business as usual. It already owns its own tech stack thanks to its prior acquisition of SBTech. It’s well-positioned in the US. Analysts were by and large perplexed by its offer for Entain. The fact that it failed to reach a deal therefore probably doesn’t hurt the company much. It will keep on doing as it has been doing, and forget about global aspirations for the time being.
What the lack of a deal does mean, however, is that the situation with BetMGM remains unresolved. Joint ventures tend to be mutually beneficial at first, but unstable in the long run. A DraftKings takeover of Entain might have put an end to that situation. Any such deal would have required MGM’s approval, which in turn would likely have meant an agreement by DraftKings to sell Entain’s half of the joint venture. Getting full control of BetMGM was presumably MGM’s primary interest in making its own offer for Entain.
It looks unlikely at this point that any other American company will do better than DraftKings’ offer, or that Entain would accept one. That resolution to the BetMGM situation is therefore off the table, more or less.
What does that leave? Until someone has full control of BetMGM, some kind of legal battle is always a risk, but both parties will want to avoid that.
It’s entirely possible that Entain will eventually sell its portion of BetMGM to MGM Resorts. It may simply be waiting until it feels it can get the best price.
BetMGM holds a greater share of the US iGaming market than it does for sports betting. However, iGaming legislation hasn’t proceeded at the pace many hoped. Entain may want to wait until at least the Illinois effort to legalize online casinos succeeds, as that should boost the value of the joint venture. That’s probably still at least two years away.
The other option would be a spin-off IPO. Here too, the question is whether the parent companies expect BetMGM to be worth much more in the future than it is now. Spinning off BetMGM would make money for both parents in the immediate term, but mean transferring equity in the company to public investors. Again, it comes down to a question of timing.
In summary, then, it looks like the status quo will hold for now and perhaps for several years. In the long run, however, there are still plenty of options to exit the joint venture and make BetMGM either independent or owned wholly by one company.