DraftKings’ Entain Offer Seen Stoking More Sports Betting M&A, Say Analysts

Posted on: September 22, 2021, 10:50h. 

Last updated on: September 22, 2021, 01:53h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Market participants are digesting the news that DraftKings (NASDAQ:DKNG) is proposing a $22.4 billion cash and stock acquisition of Entain Plc (OTC:GMVHY). Some analysts are saying talks between the two gaming companies could spur more consolidation in the sports wagering industry.

DraftKings Entain
DraftKings name is displayed across the Nasdaq sign, above. DraftKings has its sights set on Entain. Analysts believe the deal is possible, but it won’t be easy. (Image: Nasdaq)

On Tuesday, the gaming world was stunned by the revelation that DraftKings is making a run at Entain. Entain owns half of the thriving BetMGM business in the US. The Ladbrokes owner confirmed that it’s been in talks with the Boston-based sportsbook operator for several days and that the suitor made at least two offers.

Late Tuesday, Entain confirmed it rejected a $20 billion cash and equity offer from DraftKings on Sept. 19 and that the suitor returned with a $22.4 billion proposal, valuing the target at 2,800 pence per share. This is a 46.2 percent premium to its Sept. 20 closing price.

Mergers and acquisitions in iGaming and sports wagering industries are already running hot, and some analysts see the DraftKings/Entain talks stoking more of the same.

We consider the prospects for larger scale M&A realistic, given the aggressive push for market share in the nascent North American market. If the transaction were to occur, how might other players respond, Flutter/FanDuel, Caesars, Penn National Gaming, and privately held Hard Rock?,” ponders Jefferies analyst David Katz in a note.

Katz notes a key factor in internet casinos/sports betting consolidation is whether or not the buyer is gaining market share and/or access to new technology through the transaction. Given BetMGM’s impressive sports betting share in marquee markets, such as Michigan, and dominant online casinos perch, Entain checks the market share box for DraftKings, and the target’s proprietary tech stack is hailed throughout the industry.

MGM Can’t Be Ignored

The biggest question mark in a possible DraftKings/Entain marriage is how MGM Resorts International (NYSE:MGM) intends to handle the matter.

The casino operator owns the other half of BetMGM and said that because a potential DraftKings/Entain combination creates a competing business, the transaction cannot take place without MGM’s consent. The Mandalay Bay operator says it’s willing to work with DraftKings and Entain to find a resolution. But some market observers are wondering if MGM could opt for strong-arm tactics, as Caesars Entertainment (NASDAQ:CZR) did last year when it moved on William Hill.

There were other offers for William Hill, but Caesars said if the target accepted one of those, its US agreement with the casino giant would be scrapped. It remains to be seen if MGM goes down that road, but one analyst sees potential regulatory hurdles arising from a DraftKings/Entain merger.

“While DKNG could then leapfrog to become the world’s largest operator, we see potentially intractable governance hurdles with BetMGM. Also, after Entain rebuffed a GDP 8.1B ($11B) bid from MGM (earlier in January), we are mindful of a lofty premium in DKNG’s revised bid which, if formalized, would be subject to cross-border regulatory scrutiny,” said CFRA analyst Tuna Amobi in a note released earlier today. “Yet, we think the unexpected news underscores the potential land grab in the nascent online sports betting market, as some of the key players jostle for further scale on the heels of legalization across US jurisdictions.”

MGM Part II

As Amobi notes, MGM approached Entain with an $11.06 billion takeover offer in January that was rejected as inadequate.

That bid was comprised entirely of equity, and the target wanted a cash component, something DraftKings is providing. In recent months, speculation intensified that MGM would come back with another takeover offer for Entain. But that hasn’t materialized as of yet.

There’s some chatter MGM could make another run at Entain. But it’s purely speculative and the price floor set by DraftKings could be unappealing for other suitors.