PointsBet unanimously rejects latest Betr offer, flags ‘unattractive’ VIP-heavy customer base

PointsBet has unanimously rejected the latest takeover proposal from Betr Entertainment, with its board saying it is worth “materially less” than the increased offer from MIXI, which has now officially opened.

It aired concerns over the value of the deal changing due to it being all-share over cash or a mixture of both. PointsBet also flagged some “unattractive” elements of the Betr business which it did not want to be exposed to.

Betr lodged a new proposal with PointsBet on 16 July. This, Betr said, presented the operator with a “superior” offering than the one tabled by MIXI.

In its proposal, Betr pledged 3.81 of its own shares in exchange for each PointsBet share. It said this on-market offer equated to AU$1.22 per PointsBet share, based on a Betr share price of $0.32.

This also included $44.9 million of expected annual cost synergies, estimated at $0.67 per PointsBet share if fully realised. Cost synergies, coupled with all-share offer, provided a potential deal value of $1.89 per PointsBet share.

However, without estimated synergy costs, the offer was the same as an earlier proposal already rejected by PointsBet.

Why did PointsBet rebuff Betr?

In response, PointsBet said the latest Betr approach was “materially inferior” to the improved MIXI offer.

Setting out its reasons, PointsBet had concerns over Betr’s all-share proposal as the offer would change in value over time as the price of shares fluctuated.

PointsBet flagged a number of “unattractive” elements within the Betr business it did not want to be exposed to, including its “volatile” VIP-heavy customer base.

The operator also highlighted a “sub-scale” sports business heavily skewed towards racing, and high levels of customer churn, despite Betr’s level of gratuity spend.

It said synergies would only be available if Betr took a 100% holding in the group. It suggested Betr’s proposed synergies were “materially overstated” due to the investment that would be required.

Also on synergies, PointsBet said revenue dis-synergies would reduce impact, due to high levels of customer crossover between the businesses. PointsBet also referenced “significant” integration and implementation challenges that would hit any potential synergies.

Finally, the company flagged how a proposed potential buyback was “uncertain” in that it is separate to the offer. Therefore, PointsBet shareholders would not be entitled to vote to approve this buyback.

MIXI takeover offer now open

PointsBet also took the opportunity to again urge shareholders to vote in favour of the latest MIXI proposal. The MIXI offer is now officially open, with the PointsBet board unanimously recommending approval from its shareholders.

MIXI’s all-cash proposal offers AU$1.20 per share in PointsBet, implying an enterprise value of AU$402 million. The main difference with the new offer is that shareholder acceptance requirements are lower.

The offer requires the backing of at least 50.1% of PointsBet shareholders. MIXI has already secured acceptances of 17.18% through shares held by PointsBet directors and pre-bid agreements with Long Short Equity Management and Pictet Asset Management.

In addition, MIXI’s proposal has gained regulatory approvals from both the Alcohol and Gaming Commission of Ontario and the Northern Territory Racing and Wagering Commission. This means the latest bid could proceed without the need for repeat approvals, unlike the Betr proposal.

What now for Betr?

So, is this the end of the line for Betr? The company is yet to respond to the formal rejection from PointsBet, but when it lodged its latest proposal, it hinted that this could be improved further.

“This is just the start of the value creation journey we envisage for Betr and PointsBet shareholders for the combined business,” Betr said at the time.

Betr has been tenacious in its pursuit of PointsBet. Its previous proposal was also rejected by PointsBet for being “materially” below the existing MIXI offer, which failed to gain enough shareholder backing to proceed.

PointsBet held a shareholder vote on the MIXI offer on 25 June, with 95.69% approving the offer. However, the proxy vote was more mixed, with 69.47% backing the proposal.

In response, Betr accused PointsBet of “impermissibly excluding” its vote against the scheme without reason. Betr, which holds a 19.9% voting power in PointsBet, said its proxy vote was not included in the final tally.

An investigation identified a system error excluding Betr votes, with PointsBet organising a recount took place. The updated results showed 70.48% of all votes cast in the poll were in favour of the proposal, with 29.52% against. Therefore, the scheme resolution was not carried forward, and the MIXI proposal was not approved.

As for how Betr will proceed now that its latest proposal has been turned down, this remains to be seen.