Think of it this way. DraftKings just saved $22 billion with its decision not to buy U.K.-based Entain. For all the revenue coming into its coffers, DraftKings has struggle to turn a profit, given its marketing budget.
Jason Robins, DraftKings CEO, co-founder and board chairman explained why he called off the stock and cash deal.
“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.”
Vertically integrated technology stack. How’s that for a catch phrase? Sounds like something you’d order at IHOP in the 22nd century.
One way to interpret Robins comment is that the company changed its mind about the acquisition. We’re doing well. Very well. We’re leaders of the pack. And there’s the silver lining that the announcement caused DraftKings’ stock to rise 4.12 percent.
Joseph Greff, an analyst with JP Morgan isn’t shocked by DraftKings’ decision to cut and run, according to CDC Gaming Reports.
“We viewed this deal as just too complicated to close from the start,” he said, rattling off the approval needed by MGM Resorts as a result of the partnership with Entain when it came to sportsbook BetMGM; the tech sharing issues involving BetMGM; and the amount of equity needed to complete the deal.
“What remains unanswered to us, at least, is why DraftKings launched this in the first place,” said Greff, who expects the upcoming third quarter results from the company to at least hint at the reason. When it pitched the offer on September 22, DraftKings saw the potential for expansion into new markets, product growth and lots of innovations.
Still, according to the Financial Times, the decision to abandon the bid had taken some by surprise. The newspaper said sources indicated the two sides couldn’t agree on the value of the equity. For its part, Entain cited 23 consecutive quarters of double-digit online revenue growth. In other words, they didn’t get no respect from DraftKings, despite an offer that doubled what MGM Resorts offered earlier this year.
MGM Resorts offered $11 billion, after an original bid of $10 billion in all cash was turned away despite the strength of the combination.
An MGM-Entain merger could create one of the few large gaming companies in the world with a significant online and bricks-and-mortar presence, according to the Wall Street Journal. Entain operates several European online gaming brands, including bwin, PartyPoker, Ladbrokes, Coral, and FoxyBingo. MGM Resorts operates more than two dozen properties in six states, including 10 on the Las Vegas Strip. MGM also has a joint venture in Macau.
What’s not to like about that deal? Well, here’s what Entain didn’t like: “that the proposal significantly undervalues the company and its prospects.” Entain kicked that offer to the curb as well.
Unlike the MGM Resorts-Entain possibility, the DraftKings deal still had BetMGM as a sticking point. Would MGM Resorts agree to the purchase? And if so, would Entain agree to sell its half of BetMGM, according to SBC News.
That’s all off the table for now. Based on the takeover rule in the United Kingdom, DraftKings cannot entertain an offer to Entain for six months. Not that the company would be eager to return with another offer.
Despite the aforementioned pull back, a merger and acquisition may not be a dead horse when it comes to Entain, especially if MGM Resorts makes a bid for the other half of BetMGM and decides to up the bid for the entire company, according to Reuters.
David Katz, of Jefferies Research believes MGM makes the most sense as a potential buyer in spite of their prior suitor relationship.
If nothing else, MGM CEO Bill Hornbuckle has said he would be interested in taking full control of the online venture known as BetMGM, according to Asia Gaming Brief.
DraftKings is not likely to sulk and lick its wounded ego. The company will concentrate on technology and expansion into new categories and international markets, Chad Beynon of Macquarie said.
