DraftKings Drops Entain Takeover Bid, Stock Soars

Posted on: October 26, 2021, 08:40h. 

Last updated on: October 26, 2021, 11:46h.

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

DraftKings (NASDAQ:DKNG) stock is soaring Tuesday after the sportsbook operator said it’s walking away from takeover talks with Entain Plc (OTC:GMVHY).

DraftKings Entain
DraftKings CEO Jason Robins, seen above. His company is walking away from takeover talks with Entain. (Image: CNBC)

The news arrives a week after the UK-based company extended the deadline for the daily fantasy sports (DFS) giant to formalize a higher acquisition offer. That’s after the target turned back a $20.5 billion cash and stock proposal in September. DraftKings later floated a $22.4 billion cash and stock proposal, but that wasn’t an official offer. Now, DraftKings isn’t making an offer at all. At least not anytime soon.

After several discussions with Entain leadership, DraftKings has decided that it will not make a firm offer for Entain at this time,” said DraftKings CEO Jason Robins in a statement. “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.”

Pursuant to UK mergers and acquisitions law, should DraftKings decide it wants to make another run at Entain, it must now wait six months before doing so.

DraftKings Speculation Validated, Investors Like the News

DraftKings stock is higher by seven percent in midday trading on volume that’s already exceeded the daily average. That  confirms investor approval of the operator not moving forward with its pursuit of Entain. That’s a reasonable reaction, given that a $22.4 billion bid for the Ladbrokes owner is well excess of the former suitor’s current market capitalization of $22.06 billion.

News that DraftKings is departing the takeover discussions also validates speculation that emerged immediately following the company’s September offer for Entain. That centered around the suitor not being interested in a deal at all. Rather, chatter surfaced that DraftKings was merely attempting to run the price of Entain up, potentially forcing another would-be buyer to pay up for the Coral owner.

As recently as earlier this month, some on Wall Street said DraftKings wouldn’t acquire Entain.

On a related note, shares of MGM Resorts International (NYSE:MGM) — Entain’s 50/50 partner on the BetMGM venture — are trading slightly lower today on the news. That could be a reaction to diminished odds that MGM will gain full control of BetMGM now that Entain isn’t a target of DraftKings. In its statement on the ended negotiations, Entain directly mentions growth in North America via BetMGM.

The Las Vegas-based casino operator needed to approve any deal involving formation of a new BetMGM competitor. Neither DraftKings nor Entain commented on MGM standing in the way of the takeover discussions. For MGM, the upside from today’s news is that it eliminates the need for that company to potentially pursue a technology acquisition, which it may have needed to do if DraftKings bought Entain.

Entain Twice a Bridesmaid

For Entain, this is the second time this year it’s been the center of takeover talks that ultimately failed.

In January, MGM offered $11.06 billion for the company. But those negotiations stalled when the suitor declined to up the cash component of its bid. It was widely expected MGM would return with another offer later this year, but that didn’t happen.

What comes of Entain’s status as a takeover target remains to be seen. DraftKings likely set the bar so high that the pool of potential buyers is significantly smaller today than it was several months ago. With thriving operations in markets such as Australia and Europe, and the 50 percent stake in BetMGM, Entain doesn’t need to be acquired and remains a viable standalone entity.