M&A: Shareholders approve sale of STS Holdings to Entain
In a significant move that marks the expansion of London-listed Entain into Central and Eastern Europe (CCE), shareholders of the Polish bookmaker STS Holdings have voted in favor of the company’s acquisition. In June Entain submitted a bid of £750 million b to acquire 100 percent of STS, a market leader in Poland.
Entain’s strategic move was aimed at expanding its its presence in the CEE region, a key market for the gaming and betting industry. The offer presented an attractive proposition for STS shareholders as it included a 35 percent premium on STS’ six-month average share price as of the bid date.
Of the total consideration, £450 million was offered in cash, accompanied by a 10 percent stake in the Entain CEE subsidiary. STS, with its 2022 revenue of £121 million and adjusted EBITDA of £50 million, ended last year with an impressive tally of over 783,000 active users.
Shareholder approval
STS shareholders holding approximately 155.6 million shares, equivalent to 99.3 percent of the company’s total issued share capital, voted in favor of Entain’s acquisition proposal. The Juroszek family, founders of STS with control of around 70 percent of the company’s shares, had previously indicated their approval of the deal.
This resounding approval now paves the way for the acquisition to reach its completion this month.
As part of the post-acquisition process, Entain has announced its intention to initiate compulsory acquisition proceedings regarding the STS shares that were not tendered in the initial offer. The process of delisting STS from the Warsaw Stock Exchange are to commence.
Disappointment on funding of acquisition
Not all stakeholders were on board with the acquisition plan. Eminence Capital, an Entain shareholder with approximately 2.1 percent of the company’s shares, raised concerns about Entain’s capital allocation strategy shortly after the acquisition bid was announced.
In an open letter addressed to Entain’s board, Eminence CEO Ricky Sandler expressed disappointment in the way Entain was funding the acquisition. Sandler argued that the decision to issue shares amounting to approximately 8 percent of Entain’s market capitalization to finance the purchase was both “baffling and value-destructive for shareholders.”
Eminence Capital pointed out another apparent inconsistency in Entain’s approach to mergers and acquisitions. While the company previously rejected takeover offers from industry giants like MGM and DraftKings, citing undervaluation, it was now willingly issuing shares at depressed prices for acquisitions.
Sandler further contended that by issuing Entain stock at roughly 7x EBITDA to acquire an asset valued at around 12x EBITDA, the deal appeared dilutive and potentially detrimental to shareholder value.
As the acquisition of STS Holdings by Entain nears its conclusion, it remains to be seen what impact this strategic move will have on the future of the gaming and betting industry in the CEE region.
Entain Plc (ENT.L) is trading at GBp1,156.00, representing a change of -0.60 percent.
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