Posted on: December 3, 2020, 08:14h.
Last updated on: December 3, 2020, 08:14h.
Flutter Entertainment Plc (OTC:PDYPY) is shelling out $4.175 billion to acquire 37.2 percent of FanDuel controlled by Fastball Holdings LLC, a transaction that will increase the Irish gaming company’s stake in the sportsbook operator to 95 percent 57.8 percent.
Flutter, the world’s largest online gaming company, is funding the deal with $2.088 billion in cash from its balance sheet and with $1.470 billion raised via the sale of 11.7 million shares of equity, a transaction that was also announced today.
The deal, which Flutter says removes “considerable uncertainty” regarding its buyout obligations of Fastball’s interest in the business, is occurring at a discount to fair market value owing to Fastball’s minority position in FanDuel, among other factors. Investors are cheering the news with Flutter’s US-listed shares up more than 10 percent in early trading.
Our intention has always been to increase our stake in the business and I’m delighted to be able to do so earlier than originally planned and at a discount to its closest peer,” said Flutter CEO Peter Jackson in a statement.
Jackson doesn’t identify that peer, but it’s likely DraftKings (NASDAQ:DKNG), a company with a market capitalization of $19.06 billion. Indeed, paying $4.175 billion for 37.2 percent of FanDuel is a discount to what the same percentage of DraftKings is worth. That price is all the more notable when considering FanDuel, not its rival, is the largest online sports betting operator in the US.
Cementing Relationship with Fox
Fox Corp. (NASDAQ:FOXA) participated in the Flutter capital raise, highlighting an increasingly cozy relationship with the gaming company. Lachlan Murdoch, chief executive of the broadcast network, said his company is maintaining its investment in Flutter and is committed for the long-term. Flutter’s Jackson said Murdoch was the first person he called regarding the buyout of Fastball’s FanDuel interest.
The Flutter/Fox relationship can be traced back to 2019 when the media company paid $236 million to acquire fiver percent of The Stars Group (TSG), a gaming firm Flutter would later purchase. That deal was aimed at bolstering the FOX Bet brand. Under the terms of the agreement, Fox has the rights to own up to 18.5 percent of FanDuel by 2021 and can run half of TSG’s US operations in the future.
As recently as September, it was estimated that Fox’s total financial interest in Flutter when accounting for the TSG stake was worth north of $2.3 billion.
The aforementioned Fastball Holdings entered the equation via a previous arrangement with FOX Bet in which the former held a stake in the latter, but that relationship is being terminated via Flutter’s buyout offer.
“The transaction leaves Flutter with 95 percent of its prize asset, and clears up uncertainty that has overhung the shares,” Jefferies analyst James Wheatcroft said in a note to clients today.
Boyd Gaming (NYSE:BYD) owns the remaining five percent.
Flutter publicizing the buyout of Fastball’s FanDuel equity comes just two days after New York Supreme Court Justice Andrea Masley heard initial arguments in a now long-running suit brought by the daily fantasy sports (DFS) company’s founders who claim private equity firms KKR and Shamrock Capital strong-armed some board members into accepting a 2018 takeover offer that undervalued the company.
Counsel for founders Nigel and Lesley Eccles and Thomas Griffiths assert those parties and 100 former FanDuel employees were essentially left out in the cold when Flutter, then known as Paddy Power Betfair, came calling with a $559 acquisition offer in 2018.
Flutter didn’t comment on that litigation today, but the operator did say it’s forecasting year-end financial leverage to be 3x adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) as a result of Fastball buyout, putting it on pace to meet its medium-term leverage goal of 1x to 2x.