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Just two weeks before PointsBet shareholders are scheduled to vote on Fanatics’ proposed acquisition of the company’s U.S. assets, DraftKings entered with a competing proposal Friday.
PointsBet Holdings Limited announced that it had received an unsolicited non-binding proposal from DraftKings to acquire its U.S. division for $195 million. The all-cash proposal is on a debt-free basis with no financing conditions, PointsBet said in a statement. The proposal represents a 30% premium over the binding agreement signed with Fanatics Betting and Gaming last month.
On May 15, PointsBet entered into a stock and equity sales agreement with Fanatics for the sale of its U.S. sports wagering, advanced-deposit wagering (ADW) and iGaming operations at a price of $150 million. If completed, the acquisition would arguably be the most notable transaction in the U.S. sports betting space since Caesars Entertainment completed an acquisition of William Hill in 2021.
The directors of PointsBet are “committed to acting in the best interest of shareholders in considering DraftKings’ proposal,” PointsBet said in its statement Friday. News of DraftKings’ competing proposal was first reported by Action Network’s Darren Rovell Friday morning.
Weighing DraftKings’ proposal
In considering DraftKings’ proposal, PointsBet’s board will weigh several factors. For one, the board will assess the “amount and timing of capital” that will be available to shareholders. PointsBet may also strongly consider the timing of various state approvals in weighing its decision. In a letter to PointsBet dated June 15, DraftKings touted its current standing in the U.S. market, stating that it is “uniquely positioned to obtain the requisite regulatory approvals on a more expedient time frame” than can Fanatics.
A newcomer to the U.S. sports betting market, Fanatics is currently live on a limited basis in four states: Ohio, Tennessee, Maryland, and Massachusetts. Fanatics’ proposal to acquire PointsBet’s U.S. assets also includes propriety software from Banach Technology, which is widely viewed as one of the best in the industry for powering in-game sports wagering.
Why does DraftKings want to acquire PointsBet?
Think Banach is a very improtant piece here pic.twitter.com/Wamum1UmYE
— Brad Allen (@BradAllenNFL) June 16, 2023
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DraftKings, which is under pressure from investors to deliver full-year profitability in 2024, does not expect a potential acquisition of PointsBet’s U.S. assets to have an adverse impact on its goal of achieving positive Adjusted EBITDA in 2024, according to the company’s statement. DraftKings also anticipates that such an acquisition will increase its Adjusted EBITDA potential in 2025 and beyond.
“While we continue to focus on operating more efficiently and driving substantial organic revenue growth in the U.S., we will also look to prudently capitalize on compelling opportunities at attractive valuations, as is the case with PointsBet’s U.S. business,” DraftKings CEO Jason Robins said. “We believe DraftKings is uniquely positioned to submit this superior proposal due to our scale and corresponding ability to generate meaningful synergies from the acquisition.”
If DraftKings’ proposal is accepted by PointsBet, the Boston-headquartered company may see cross-sell between the product offerings, increased technological capabilities, including in-house trading, and synergies from overlapping fixed costs, JMP Securities analyst Jordan Bender wrote in a research note on Friday.
In a written response provided to Sports Handle, Fanatics CEO Michael Rubin called DraftKings’ bid a result of desperation.
“We are skeptical of the DraftKings proposal, which seems like a desperate move to slow down Fanatics and PointsBet from completing a deal,” Rubin stated. “The purchase price and other financial commitments will total more than $500 million — so they are using the majority of their projected year-end cash just to try to block us.”
Defensive dealmaking
DraftKings is certainly no stranger to engaging in defensive dealmaking. In September 2021, it submitted a $22 billion cash-and-stock proposal to acquire U.K.-headquartered Entain, one that doubled MGM Resorts’ $11 billion proposal from earlier that year. The deal would have expanded DraftKings’ footprint outside the U.S. while simultaneously weakening a rival. MGM Resorts owns a 50% stake in BetMGM with Entain. Roughly a month later, DraftKings withdrew the proposal.
For the quarter ended March 31, 2023, DraftKings had $1.52 billion in cash on hand, a decline of 32% from the prior year’s quarter. DraftKings noted in February that it expects to end 2023 with more than $700 million in cash. DraftKings currently projects roughly $900 million in free cash flow, Rovell reported.
Fanatics’ proposed acquisition of PointsBet’s U.S. assets includes a four-year, $250 million advertising commitment to NBCUniversal as part of a prior deal between PointsBet and NBC.
BREAKING: @DKSportsbook offers more for @PointsBetUSA US business, would serve to block and slow down Fanatics.
Does it make that much sense that it’s worth a $450M+ commitment?https://t.co/ROi6u4hSEj
— Darren Rovell (@darrenrovell) June 16, 2023
If completed, the acquisition of PointsBet’s U.S. assets will grant Fanatics market access in at least 14 states. Prominent states such as New York, New Jersey, and Pennsylvania are among an initial group of 10 in which PointsBet operates that Fanatics could enter this year, if its proposal is accepted.
PointsBet’s shareholders will vote on Fanatics’ proposal at a meeting on June 30. The proposal requires 50% approval from shareholders that take part in the vote.
As of June 7, eight of PointsBet’s top 10 shareholders had either voted in favor of the Fanatics proposal or advised the company that they intend to vote in favor of the sale absent a superior proposal.
PointsBet closed Friday on the Australian Stock Exchange at A$1.36, up fractionally. DraftKings rose 1.75% in U.S. pre-market trading to $25.25 a share. Last week, DraftKings hit a 52-week high of $26.65, more than doubling its price from the start of the year.
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