DraftKings Walks Away From $22.5 Billion Takeover of Entain
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In one of the biggest developing stories surrounding sports betting this year, DraftKings has opted to walk away from a potential $22.5 billion takeover of Entain (formerly GVC Holdings), an international sports betting company focused on technology. The two companies had agreed to November 16 as the formal deadline under UK takeover law for DraftKings to formalize its bid or walk away following the deadline being pushed back from October 19. Robert Caccia, an analyst at Investec, described the development as “an abrupt interruption of talks” as the deal fell through quickly and came as a surprise to some analysts in the sector.
Jason Robins, DraftKings CEO, Co-Founder, and Chairman of the Board said the company is “highly confident in [its] ability to maintain a leadership position and achieve [its] long-term growth plans in the rapidly growing North America market” with its “vertically-integrated technology stack, best-in-class product and technology capabilities, and leading brand.” Entain also expressed its confidence in an official statement. DraftKings cannot make another bid for Entain for six months under Rule 2.8 of the Code of British takeover rules unless there is a competing offer.
Why DraftKings Wanted Entain
DraftKings had initially targeted Entain to create synergy in the realm of customer acquisition and retention with Entain’s impressive suite of technological products. In addition, DraftKings hoped to expand its international reach as Entain has licenses in 27 different countries. The bid indicated DraftKings’ desire to go head-to-head with FanDuel, which is 95% owned by Flutter, and Entain would provide DraftKings with the catalog of in-house resources that FanDuel has access to from Flutter. Entain has delivered 23 consecutive quarters of double-digit online net gaming revenue with a 19% three-year CAGR across 2021.
MGM Complicated the Deal
One of the major complicating factors in DraftKings’ takeover bid of Entain was the fact that the UK-based company has a 50-50 joint venture with MGM Resorts International in BetMGM, one of DraftKings’ key competitors in the United States sports betting market. BetMGM is steadily growing and saw a 26% market share in Q3 2021 with over $200 million revenue, just 15% less than DraftKings. Entain had previously rejected an $11 billion takeover bid from MGM – that ended up about half of what DraftKings was willing to offer. However, MGM Resorts had warned it was planning to kill the deal with a veto unless it got complete control over BetMGM and the Entain technology that powers it.
Stock Price is Rising After This News
Following the news of the takeover bid falling through, DraftKings (NSYE: DKNG) stock soared on Tuesday and was up as much as 8%. Since the deal was first reported, the stock price had fallen over 20%, indicating that shareholders were not confident that the takeover of Entain was the right move for the company. However, since going public in 2020, DraftKings shares have more than doubled. Relying on shares of a public company in an acquisition when shareholders are not confident in the move is a risky strategy, as shown recently by PayPal’s failed takeover of Pinterest. Entain shares were down about 11% on Tuesday on the London Stock Exchange.
