Terms of the acquisition
PointsBet shareholders will now be invited to vote on the proposed transaction, which will take place on a debt free, cash free basis for a headline cash consideration of $150m, at a shareholder meeting in late June.
FBG will pay $100m to PointsBet upon initial completion of the deal, with a further $50m to be paid at subsequent completion.
In addition to the acquisition, PointsBet will provide services to FBG prior to the final closing of the deal, and will be reimbursed by FBG for those services.
Net proceeds of the sale, together with the majority of PointsBet’s corporate cash reserves, are expected to be distributed among shareholders. The firm’s board estimates the deal to deliver between A$1.07 and A$1.10 per share to shareholders.
Following the transaction, PointsBet will retain its Australian and Canadian businesses, as well as ownership of its proprietary sports betting, racing and iGaming platform and a perpetual, royalty-free licence to exploit its previously acquired Banach Technology assets, which will be sold to FBG under the deal.
A previously agreed deal between PointsBet and NBCUniversal, which saw the operator obliged to spend around $58m per year on advertising with the broadcaster, will be transferred in full to FBG as part of the transaction.
PointsBet’s final payment to NBCUniversal is included within a funding requirement capped at $21m between approval of the sale by shareholders and the final completion of the transaction.
Rationale behind the deal
PointsBet said it intended to alleviate the demands on its balance sheet by offloading its US business.
Having already considered and implemented a number of initiatives aimed at reducing the cash requirements of its US operations, the company’s corporate cash balance is still insufficient to fund the US business through to profitability, it said.
As a result, without putting the assets up for sale, PointsBet would have needed to raise additional capital in the near term, during a period of “challenging” market conditions.Any equity capital raised by the company would therefore need to be raised at a substantial discount to recent market prices, the firm said, while there could be no guarantee that additional capital could be raised at all in the near term.
The proposed transaction therefore addresses a key uncertainty for PointsBet by removing the need to raise capital in order to fund the US business to the point of becoming cash flow positive.
After completing the sale, PointsBet said it expects its remaining Australian and Canadian business to be at or around EBITDA breakeven on a standalone basis.
“In view of the US market in which the company has significant operations, the board has explored and considered a wide range of strategic alternatives over an extended period of time,” said PointsBet chairman Brett Paton.
“Having considered all of the options potentially available to the company, the board believes the Fanatics Betting and Gaming proposal optimises value for shareholders.
“The acquisition by Fanatics Betting and Gaming of our US business will enable PointsBet to return significant capital to shareholders, while retaining strong Australian and Canadian businesses supported by our leading proprietary technology in a capital-light setting,” Paton concluded.
PointsBet CEO Sam Swannell added that in the US, “the costs of operating in a state-by-state environment, together with the requirement to build significant scale to compete against well capitalised operators, led us to explore a number of options.
“Fanatics Betting and Gaming has recognised our strategy, technology and team, as a platform for their own expansion in the online sports betting and iGaming market.
“Given Fanatics’ significant presence in the US sports market, we consider them to be a natural acquirer of our US business.”
Swannell concluded that the proposed transaction removes the risks and capital requirements associated with executing PointsBet’s US strategy.
The deal was poorly received by PointsBet shareholders. The announcement triggered a more than 20% decline in the ASX-listed operator’s share price.