DraftKings (NASDAQ:DKNG) is reportedly courting Entain Plc (OTC:GMVHY) at a price tag of $20 billion. It’s news that’s sending shockwaves throughout the sports betting universe.
Citing unidentified sources, CNBC reports DraftKings is offering $20 billion in cash and equity for the Ladbrokes owner. The offer, which is described as “serious,” was delivered to the UK-based target last weekend.
Shares of Entain jumped more than 15 percent in London trading and are higher by 17.61 percent in the US session, while DraftKings is off 7.6 percent. The $20 billion offer is equivalent to 87.6 percent of DraftKings’ market capitalization of $22.82 billion. Entain confirms it received a takeover bid from DraftKings, noting it’s a mix of cash and stock.
The board of Entain confirms that it has received a proposal from DraftKings to acquire Entain, the consideration for which would include a combination of DraftKings cash and stock,” said the Coral owner. “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. A further announcement will be made as and when appropriate.”
A combined DraftKings/Entain would create a US online sports betting powerhouse, because the suitor and BetMGM, which is half-controlled by the British bookmaker, are the number two and three operators in the US, trailing only FanDuel. MGM Resorts International (NYSE:MGM) owns the other 50 percent of BetMGM.
DraftKings/Entain Marriage Potential Problem for MGM
In the wake of DraftKings’ offer for Entain, some market observers are already mentioning MGM as a potential loser in this scenario.
In January, the casino giant made an $11.06 billion, all-stock offer for its BetMGM partner that was rejected as inadequate. At that time, it was rumored Entain was seeking a cash component — something MGM ultimately didn’t provide. It’s believed DraftKings’ proposal includes up to 30 percent cash.
MGM didn’t make a second bid for Entain. But as BetMGM’s iGaming and sports wagering market share grew, so did Entain’s market value, confirming any new offer would have to exceed MGM’s initial overture. Owing to a spate of asset sales, MGM’s cash stockpile has also been swelling, stoking speculation the gaming company would eventually make another run at its BetMGM partner.
Professional investors recently called Entain the most likely UK-based company to be acquired before the end of this year. But conventional wisdom held that it’d be MGM, not DraftKings, making a transaction happen. Should DraftKings seal the deal, it’d be a blow to MGM.
“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 know-how, and a partner with whom to share risk in a hyper-irrational US online gambling market,” said Eilers & Krejcik Gaming Managing Director Chris Krafcik.
With Entain, DraftKings Immediately Turns Profitable
If DraftKings is successful in acquiring Entain, the suitor would allay investors’ concerns regarding when it becomes profitable. The Boston-based sportsbook operator is forecast to be earnings before, interest, taxes, depreciation and amortization (EBITDA) negative to the tune of $590 million this year. But Entain is expected to generate EBITDA of $1.2 billion.
If an agreement is reached, DraftKings would also gain access to the bwin, PartyPoker, and Sportingbet brands, among others, and morph from a US company to a player on the global gaming stage.
Formerly GVC Holdings, Entain is licensed to operate in 20 countries across five continents. That includes dominant positioning in mature betting markets, such as Europe, the UK, and Australia. Assuming a deal is struck, it remains to be seen what DraftKings would do with Entain’s UK betting shops. The US company runs an asset-light model and doesn’t directly own brick-and-mortar operations.
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