Entain shares nosedived after the Ladbrokes owner revealed it had raised around £600million from investors to fund the acquisition of a Polish sports betting operator.
The firm plans to use the cash to purchase STS via a joint venture with EMMA Capital, of which it owns 75 per cent, for a total consideration of £750million.
Entain issued more than 48 million shares, including almost 500,000 to retail investors, at a price of £13.22 each, representing a 6.9 per cent discount to yesterday’s closing price.
Entain shares were down 10.2 per cent in early trading to £11.87.
The fall broadly reflects the 8.3 per cent of share capital represented by new shares issued to investors during the placing.
© Provided by This Is Money Entain shares nosedived after the Ladbrokes owner revealed it had raised around £600million from investors to fund acquisition of a Polish sports betting firm
Entain announced the acquisition of STS late on Tuesday, with the FTSE 100 group valuing the Polish firm PLN 24.80 (£4.74) per share.
STS’s CEO Mateusz Juroszek and his father Zbigniew Juroszek, who collectively hold approximately 70 per cent of the firm share, agreed to accept the offer and re-invest a proportion of their proceeds into Entain’s central and Eastern Europe operations in return for a 10 per cent stake.
The net cash consideration of the acquisition payable by Entain will be approximately £450million. The remaining cash from the fundraise will be used to help fund future deals.
STS is the biggest sports betting operator in Poland with almost 800,000 active users at the end of 2022 and 400 retail stores. In 2022 it made adjusted earnings before nasties of around £50million.
Matt Britzman, equity analyst at Hargreaves Lansdown, said: ‘Strategically the deal makes sense, it continues the expansion into fast-growing regions and leverages many of Entain’s existing capabilities.
‘The price is a sticky point, and potential cost synergies of £10million in the grand scheme of things are pretty thin. The £750million total cost values STS at 11 times its expected cash profit… that’ll drop to below 10 if the synergies are delivered – but still, that’s likely to be ahead of Entain’s current valuation.
‘There’ll be plenty of pressure to make this work.’
It comes at a time of expansion for Entain, which followed up last year’s acquisition of Croatia’s biggest bookmaker for €600million with the £128million takeover of Israeli sports data provider 365scores in April.
Entain is bracing itself for a ‘substantial financial penalty’ after an investigation by HM Revenue and Customs into the gambling group’s business practices in Turkey.
Nevertheless, Entain hailed a ‘strong start’ to the year with ‘record’ customer numbers as the gambling giant was buoyed by US punters during the Super Bowl and March Madness.
Briztzman added: ‘As I write, shares are now trading below the price paid by those involved in the capital raise, so any investor looking to get their piece of the pie back has a more attractive entry point.’