What Are the Implications of DraftKings’ Acquisition of Entain?

What Are the Implications of DraftKings’ Acquisition of Entain?

With the online gambling industry thriving, particularly in North America with pro-gambling legislation sweeping across the region, it is no surprise that companies within the industry are looking to expand and grow. Although online gambling is nothing new, it has seen some massive increases in revenue over the last 18 months with many operators successfully navigating the pandemic; so, it stands to reason that companies are going to want to be a part of this.

There have been several industry changes and in the near future, there are likely to be more, with the latest announcement being that US betting company DraftKings has put in a proposal to take over Entain.

The details of the proposal

It is thought that the proposal has been in the making for some time, with the early stages of the deal not fully revealed. However, Entain did announce in mid-September that they had received an offer of £25 per share. The offer, which comprised cash and stock, had been rejected by the Entain board. However, not to be defeated, DraftKings came back with a higher proposal of £28 per share. This was made up of £6.30 as a cash portion with the future amount representing 46.2% premium of Entain’s closing share price at the time, made up of Class A common shares. Should this go ahead, it would put the value of the business as £16.4bn. Although the offer has been talked about, there is no firm offer under the City Code on Mergers – DraftKings must do this by the 19th of October if they do wish to go ahead.

Entain is a massive player in the gambling industry, owning big brand names such as Ladbrokes. The announcement that they had received a takeover bid was well received by the industry in general, with shares in the company surging by 6%; to their highest value ever. Entain has been well-sought after within the industry, having received a takeover attempt by MGM Resorts at the start of the year, for a much lower amount than has now been offered by Entain (£13.83 per share). So far the only talks from Entain confirm that they will consider the latest proposal and they have urged current shareholders to take no action.

Why would a company want to take over Entain?

Entain is one of the world’s largest sports betting operators; with their companies spanning high street and online betting offerings. Some of the companies include Ladbrokes, SportingOdds, and BWin. However, it isn’t just sports betting that they’re involved in; they also have a huge portfolio of gaming websites including PartyPoker, Foxy Bingo, and PartyCasino. With such a range of companies under its belt, it stands to reason that other people are going to be interested in how they are performing and how they can have a piece of the pie.

Although sports betting and online poker are nothing new, the last 2 years have seen massive growth within the industry. Not only have we seen more people turn to online entertainment, but the amount they are spending has increased; which has been lucrative for the gambling industry as a whole. Entain released its results in August 2021 and it shows some incredible growth – something that any company would be proud to be a part of. With the gambling industry showing no real sign of slowing down, it makes sense that companies are going to want to invest further in the industry in order to promote even more growth and of course, make further profits.

Another factor in the market that has helped DraftKings in the early stages of the US legalization is the development of technology in the mobile sector. There is now a wider range of mobile casinos than ever as operators start to optimize their services for on-the-go use; which has opened up to a whole new market. With it easier than ever for punters to place a bet, the chances of people spending more money are much higher – great for the industry!

What does this mean for the future of the gambling industry?

The industry, in general, is one that is likely to continue to grow, as people continue this shift towards using online services to get what they need. Although in 2020 the use of eCommerce was forced in many scenarios, it has introduced a new way of life to many people – which they’re enjoying very much. Although the world is returning to normal, there is still a portion of people wary of attending busy events. With the 3rd booster vaccine being offered, winter on its way, and people still being “pinged” in order to isolate it is understandable that people would be reluctant to go out too much. However, for an industry such as the gambling one, this is great news. Online gambling platforms have always embraced technology and as such, this was their time to shine.

A takeover bid such as the DraftKings and Entain one is just further proof that the industry is thriving and that people are seeing the potential. For DraftKings to be willing to up their bid by such an amount, it means that they must be able to see a potential for industry change and growth. There are a number of big-name players within the industry, so it is unlikely that this is going to be the last takeover bid of this.

However, what we don’t yet know is whether Entain is going to entertain the proposal or whether it will be declined. They have already declined a much lower bid by MGM and a slightly lower bid by DraftKings, so they’re a brand that isn’t afraid to say no if they don’t feel that it is the perfect deal for them. With things needing to be formalized by the middle of October, we’re likely to see some movement over the next couple of weeks. Industry insiders will be looking forward to seeing what happens with this takeover bid as it may well pave the way for other potential mergers and takeovers to happen over the coming months.

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