PointsBet Warns of Risks in Betr’s Bid, Recommends MIXI Takeover Offer

PointsBet’s Clear Stance Against Betr’s Offer

In a decisive move, PointsBet Holdings Limited’s board has rejected the unsolicited takeover offer from Betr Entertainment Limited, which proposed an all-scrip deal exchanging 3.81 Betr shares for each PointsBet share. The PointsBet board, supported by external advisers, concluded that Betr’s offer is materially inferior to the competing bid from MIXI Australia Pty Ltd, which offers a straightforward cash price of $1.20 per share.

The rejection stems from several critical concerns. PointsBet highlights the conditional nature of Betr’s proposal, which depends on shareholder approval and regulatory clearance from Ontario’s gaming authorities; both uncertain in timing and outcome. Additionally, the liquidity of Betr’s shares on the ASX is low, creating uncertainty around the realisable cash value for PointsBet shareholders who would receive Betr shares.

Business and Customer Base Risks

PointsBet’s board also points to fundamental issues with Betr’s business model. Betr’s revenue is heavily concentrated in racing products, which make up 85% of its net win, a segment with lower margins and limited growth compared to the sports betting sector where PointsBet is stronger. Moreover, Betr’s customer base is described as VIP-heavy and volatile, with a small number of high-value customers driving a disproportionate share of revenue. This concentration raises sustainability and regulatory risks, alongside unpredictable margins.

Customer churn rates further underscore the challenges. Despite higher gratuity spending to retain customers, Betr’s churn rate remains significantly above PointsBet’s, suggesting weaker customer loyalty and potential future revenue instability.

Synergies and Integration Challenges

While Betr has touted significant synergies from a potential merger, PointsBet disputes these claims. The board believes cost synergies are overstated, given the necessary investments in brand, digital, product, and technology to maintain competitive positioning; especially in the growing sports betting market. Revenue dis-synergies are also expected due to high customer overlap between the two companies, which historically led to declines in net win following previous mergers in the sector.

Integration complexities add another layer of risk, particularly regarding the assumption that PointsBet’s Canadian operations can be separated without stranded costs. PointsBet notes that this is not a condition of Betr’s offer, adding uncertainty to the potential benefits.

Endorsement of MIXI’s Cash Offer

Against this backdrop, PointsBet’s board has unanimously recommended shareholders accept MIXI Australia’s all-cash takeover offer, which is currently open and backed by MIXI’s existing 9.15% stake in PointsBet. The board’s endorsement reflects confidence in the certainty and value of the cash offer, contrasting sharply with the risks and conditionality of Betr’s scrip proposal.

PointsBet plans to release a detailed target’s statement shortly, providing further insights into the board’s recommendation and the rationale behind favoring MIXI’s bid in the absence of any superior proposals.