Ladbrokes owner Entain (ENT) is considering a takeover offer from US betting firm DraftKings (US:DKNG), it has announced, after first rejecting a 2,500p per share cash and share deal. The confirmation of the offer level and second bid came on Wednesday morning after Entain had confirmed on Tuesday that DraftKings had made an approach.
Entain’s shares shot up to 2,348p from 1,890p, on the back of a CNBC report on a possible offer on Tuesday, and surged 7 per cent again on Wednesday morning after the company revealed the 2,800p proposal.
"The board of Entain will carefully consider the proposal and a further announcement will be made as and when appropriate," the company said. In the statement, Entain underlined its "leadership position in the rapidly growing North American market" through the joint venture BetMGM. In Europe, Entain owns Coral and Ladbrokes, as well as Eurobet and a variety of online gaming sites.
The betting company was in talks with MGM Resorts International (US:MGM) at the start of the year after it made an £8bn takeover offer, but the board decided the cash and share deal was too low.
Since then, Entain’s share price has climbed steadily as punters kept gambling online even as stores re-opened. Its sales in the first half climbed 12 per cent year-on-year.
DraftKings has grown from a fantasy baseball league operator in 2012 to an all-round gaming giant worth $21bn, and its investors since then have included sports clubs like the New England Patriots and Major League Baseball itself. Last month, it announced an all-share combination with gaming company Golden Nugget valuing it at $1.6bn.
DraftKings only listed in 2019, and its 2021 sales are forecast to be $2.5bn below Entain’s, at $1.3bn, as per FactSet consensus figures.
Entain said in its statement there is "no certainty that any offer will be made for the company". The company's finance chief told Investors' Chronicle last month punters would likely shift some spending away from gambling as the UK and other markets reopen, but flagged investment in esports and other growth areas.
Entain already has a US presence through its joint venture with MGM, which has expanded from just a handful of states at the beginning of 2020 to 13 as of June. Hargreaves Lansdown analyst Nicholas Hyett said this was likely to be the key draw for DraftKings. "Rapid growth in market share in a market which is itself exploding makes Entain hot stuff," he said.
We have a hold rating on Entain given the topline risk of rising cost pressures and alternate spending options.
Last IC View: Hold, 1,949p, 13 Aug 2021
