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Shareholders in Polish bookmaker STS Holdings have voted to approve the company’s sale to London-listed industry giant Entain.

Acquisition background

Entain submitted a £750m bid for 100% of the Polish market leader in June, with a view to boosting its Central and Eastern European (CEE) business.

The offer represented a 35% premium on STS’ six-month average share price as of the bid date. 

Of the total consideration, £450m was offered in cash alongside a 10% stake in the Entain CEE subsidiary.

STS recorded 2022 revenue of £121m and adjusted EBITDA of £50m, ending the year with more than 783,000 active users.

Shareholder approval

Now, STS shareholders holding some 155.6 million shares, or 99.3% of the company’s total issued share capital, have voted to acept Entain’s offer.

The company’s founders, the Juroszek family, who together control some 70% of STS shares, had already indicated that they would approve the deal.

The acquisition is now expected to complete later this week on 24 August.

Entain said it now intends to initiate compulsory acquisition proceedings in respect of the STS shares not tendered in the offer, and commence the de-listing process from the Warsaw Stock Exchange.

Deal controversy

Not everyone accepted the acquisition.

Shortly after the acquisition bid was announced, Entain shareholder Eminence Capital, which holds around 2.1% of the company’s shares, raised questions around the operator’s capital allocation strategy.

In an open letter to Entain’s board, Eminence CEO Ricky Sandler expressed disappointment at the manner in which Entain chose to fund the acquisition.

Eminence argued that Entain’s decision to issue shares amounting to approximately 8% of its market cap to fund the purchase was both “baffling and value-destructive for shareholders.”

It suggested a discrepancy in Entain’s approach to M&A, having turned down takeover bids by the likes of MGM and DraftKings on grounds of undervaluation, while willingly issuing shares at depressed prices for acquistiions.

By issuing Entain stock at roughly 7x EBITDA to purchase an asset at around 12x EBITDA, the deal appeared to be dilutive and value destructive to shareholders, Sandler argued.