REG - Entain PLC - Entain CEE Acquisition of STS in Poland

EntainAnnouncement

13/06/2023 17:15

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RNS Number : 6006C  Entain PLC  13 June 2023

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THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

 

13 June 2023

 

Entain plc

 

Entain CEE acquisition of STS, the #1 sports-betting operator in Poland

Further expansion across Central and Eastern Europe

 

Entain plc (LSE: ENT), the global sports-betting, gaming and interactive
entertainment group ("Entain" or the "Group"), today announces that Entain
Holdings (CEE) Ltd. ("Entain CEE"), is launching a tender offer (the "Offer")
to acquire 100% of STS Holding S.A. ("STS") for a total consideration of
approximately £750m (the "Acquisition"). (1)

 

STS is the leading sports-betting operator in Poland and is listed on the
Warsaw Stock Exchange (WSE:STH). The Offer will be priced at PLN 24.80 per
share, valuing the equity value of STS at approximately £750m, and the
enterprise value at approximately £690m.(2)

 

Entain CEE is Entain's venture in Central and Eastern Europe ("CEE") together
with its partner EMMA Capital ("EMMA"). Entain and EMMA will fund the Offer in
proportion to their current shareholding in Entain CEE (75% / 25%
respectively). Entain will fund its proportion of the consideration via an
equity placing and a separate retail offer through the PrimaryBid platform,
the details of which have been announced separately.

 

STS's CEO Mateusz Juroszek and his father Zbigniew Juroszek, who through their
respective family foundations ("Juroszek Foundations" or "Foundations")
collectively hold approximately 70% of STS's share capital, have entered into
a binding agreement to irrevocably accept the Offer. Following completion, the
Juroszek Foundations will re-invest a proportion of their proceeds into Entain
CEE in return for a 10% economic stake in Entain CEE. (3)

 

The net cash consideration of the Acquisition payable by Entain will be
approximately £450m.

 

Compelling Strategic Rationale

 

·      An exciting opportunity to acquire an attractive asset in a
high-growth regulated market within CEE: CEE offers an exciting opportunity in
new high-growth and regulated markets in line with the Group's strategy, as
outlined at the launch of Entain CEE with the acquisition of SuperSport in
August 2022
(https://entaingroup.com/newsrelease/formation-of-entain-cee-to-drive-expansion-in-central-and-eastern-europe-and-the-acquisition-of-supersport-the-leading-gaming-and-sportsbook-operator-in-croatia/)
. Poland is the CEE region's largest economy, with the Polish gaming market
having c.$1.6bn of gross gaming revenue in 2022 and average gambling spend per
adult increasing at a CAGR of 24% in the last three years. This market
continues to grow considerably with a forecast near term CAGR of 12%
(2022-2025). (4)

·      Acquiring the #1 sports-betting operator in Poland: STS is the
market leader in Poland, and has a highly successful and proven omnichannel
offering led by a substantial online business (82% of NGR), with strong active
user growth. In the three years to the end of 2022, its active users grew at a
19% CAGR to reach 783k active users at the end of 2022. STS also has a
significant and complementary retail footprint of c.400 stores, making it the
largest retail operator in the Polish market. STS has a robust and high-growth
financial profile, generating FY22 NGR of PLN 663m (£121m, +17% YoY) and
Adjusted EBITDA of PLN 273m (£50m).(5)

·      Adding another leading business to Entain CEE, which is expected
to provide attractive synergies from our CEE platform: Through the
transaction, £10m+ run-rate synergies are expected to be generated, including
through the proposed combination of two outstanding operational and technology
platforms in the CEE region.

·      Acquisition expected to be earnings accretive in the first full
year of ownership: STS has consistently delivered strong top line financial
performance (+24% NGR CAGR since 2020) and adjusted EBITDA growth (+34% CAGR).
Combined with the expected £10m+ run-rate synergies, it is estimated that the
Acquisition will be earnings accretive in its first full year of ownership.(6)

·      Mateusz Juroszek will remain as CEO of STS and join the board of
Entain CEE: Mateusz has been CEO of STS since 2012 and has been critical in
driving STS's growth over the last decade. Given Mateusz's extensive knowledge
of the business and the Polish gaming market, Entain is delighted that he will
continue as STS CEO and that he will also join the board of Entain CEE,
helping to drive further regional growth and deliver on Entain CEE's strategy.

·      Incremental potential upside if Polish online casino market fully
liberalises: The online casino market is currently not fully liberalised in
Poland. As a licensed and regulated operator, STS would likely be
well-positioned to benefit from the opportunity to enter the online casino
market should this market fully liberalise in the future.

 

Consideration and Offer Highlights

 

·      Entain CEE is launching the Offer to acquire 100% of STS, at a
purchase price of PLN 24.80 per share

§ This Offer represents a 35% premium to 6-month volume weighted average
price of PLN 18.33 as at 12 June 2023(78)

§ This Offer represents a 28% premium to the 3-month volume weighted average
price of PLN 19.38 as at 12 June 2023(78)

§ This Offer represents a 20% premium to the spot price of PLN 20.75 as at 12
June 2023(7)

·      Based on analyst consensus for the year to 31 December 2024, STS
is expected to generate EBITDA of PLN 333m, implying an enterprise multiple of
11x(9)

o  After the synergies that being part of Entain CEE can bring, we expect
this multiple to reduce to below 10x

·      Radim Haluza, CEO of Entain CEE, will continue to drive and
oversee the continued success of both STS and SuperSport

·      Following the Juroszek Foundation's investment in Entain CEE,
Entain CEE's economic rights will be approximately 67.5% owned by Entain plc,
22.5% owned by EMMA Capital, and 10% owned by the Juroszek Foundations

o  Up to half of the 10% stake owned by the Juroszek Foundations is subject
to clawback by Entain CEE should STS not achieve certain financial hurdles in
2023

o  There are options over the shares held by the Foundations and EMMA, giving
Entain a path to 100% ownership, exercisable by Entain 4 years from closing
and exercisable by the other shareholders from November 2025

·      The tender offer document is expected to be published in
mid-July, with the acceptance period expected to commence shortly afterwards

o  The acceptance threshold of the Offer is set at 50%

o  The Juroszek Foundations have made irrevocable undertakings to tender
their c.70% shareholding into the Offer, and therefore this threshold will be
met

o  The Acquisition is also conditional upon antitrust approval, and is
expected to complete in Q3 2023

·      The Offer price of PLN 24.80 per share is made on the basis that
no dividends are to be paid or declared by STS to its shareholders, including
the recently proposed dividend of PLN 0.55 per share for the financial year
2022 and any advance on dividends for financial year 2023 (which accordingly
shall not be paid in addition to the Offer price)

 

Financing

 

·      Entain's cash component of the consideration will be funded
through a non-pre-emptive equity placing of new ordinary shares conducted
through an accelerated bookbuild launched today, and via a separate offer to
retail investors via the PrimaryBid platform.

·      This is expected to raise gross proceeds of approximately £600m
(representing c.7.9% of Entain's issued share capital) to primarily finance
the Acquisition (£450m), as well as to fund further near term acquisitions.
The terms of the placing and retail offer were announced separately today.

·      As a result of the Acquisition, equity placing, and retail offer,
Entain's FY23 Net Debt / EBITDA will be reduced by approximately 0.3x.

 

Morgan Stanley is acting as lead financial adviser to Entain as part of the
transaction with BofA Securities acting as financial adviser and Santander
Corporate and Investment Banking acting as financial adviser and sole provider
of the financing guarantee. Clifford Chance LLP and Freshfields Bruckhaus
Deringer LLP are acting as legal advisers and Ernst & Young LLP providing
tax and structuring advice.

 

Oakvale Capital LLP and White & Case LLP are acting as sole financial and
legal advisers to STS and the Juroszek Foundations as part of the transaction.

 

 

Jette Nygaard-Anderson, Entain's CEO, commented:

 

"We are delighted to be acquiring the leading sports-betting operator in
Poland, which is a hugely exciting and fast-growing market. STS is an
exceptional business with a great brand, a compelling omnichannel offering,
and an outstanding CEO and management team. The transaction is perfectly
aligned with our Entain CEE strategy and our wider M&A strategy of
acquiring high quality businesses with leading positions in attractive,
growing and regulated markets.

 

Expansion across Central and Eastern Europe remains a core component of our
growth plans, and STS will be an integral part of our platform in that
region."

 

Mateusz Juroszek, STS's CEO, commented:

 

"I am very excited to be joining the board of Entain CEE, and see significant
growth opportunities in the Polish market for STS under Entain's ownership.
Entain is a world class operator and has already made a significant investment
in this region through SuperSport in Croatia. We could not have found a better
partner to help us take STS into the next phase of its growth, and it is clear
that Entain shares our ambition and vision for its future. I look forward to
continuing to lead and grow STS, and to working in close collaboration with
the Entain CEE team."

 

The Acquisition constitutes a Class 2 transaction for the purposes of the UK
Listing Rules. For the purposes of LR 10.4.1 R (Notification of Class 2
transactions), the gross assets and profits of STS were £85m and £42m, based
on the Q1 2023 balance sheet (as of 31 March 2023) and the full year 2022
audited accounts respectively.

 

Notes

(1) Based on a PLNGBP exchange rate of 5.21, which is the assumed exchange
rate where relevant throughout this announcement. Historical financials
translated at appropriate historical FX rates for that period or date.

(2) Enterprise value includes an adjustment for net cash position on balance
sheet. £10m+ of synergies are expected from the transaction.

(3) The Juroszek Foundations will reinvest a proportion of the sale proceeds
for a 10% economic stake, assuming 100% acceptance of the Offer. Depending on
the level of acceptances to the tender offer, the Foundations' economic
interest in Entain CEE may be initially higher (up to 11.5%) with a
corresponding pro rata impact on the Entain and EMMA holdings. However, this
will be diluted back to 10% in due course (and by mid-January 2025 in any
event). This reinvestment will be made by reference to the valuation of Entain
CEE that is in-line with the previously communicated value of Entain CEE at
the time of the SuperSport transaction.

(4) Market data per H2GC. Total Addressable Market (TAM) is based on gross win
across land based and interactive, excluding lotteries.

(5) NGR presented as per STS accounting. FY22 financials translated at average
FY22 PLNGBP rate.

(6) Excluding the use and raise of the £150m additional proceeds.

(7) As per Bloomberg.

(8) Arithmetic average of the average daily prices weighted by the volume of
trade in the stated period preceding the tender offer notification in Poland
on 13 June

(9) Consensus as per Refinitiv Eikon.

 

 

Presentation

 

A presentation for analysts and investors will be held today, 13 June, at
5:15PM. Participants may join via webcast or by conference dial in:

 

Webcast link: https://kvgo.com/IJLO/ENTAIN_Private_and_Confidential
(https://kvgo.com/IJLO/ENTAIN_Private_and_Confidential)

 

To participate in the Q&A, please also connect via the conference call
dial in details:

UK                           +44 (0) 330 551 0200

US                           +1 786 697 3501

Access Code:        Quote Entain when prompted by operator

 

Contact details

Entain plc

 Investor Relations - Entain plc                           investors@Entaingroup.com (mailto:investors@entaingroup.com)

 David Lloyd-Seed, Chief IR & Communications Officer

 Davina Hobbs, Head of Investor Relations

 Aimee Remey, VP US Investor Relations

 Callum Sims, IR Manager

 Media - Entain plc                                        media@Entaingroup.com (mailto:media@Entaingroup.com)

 Lisa Attenborough, Head of Corporate Communications

 Jay Dossetter, Head of Corporate PR

 Jodie Hitch, PR Manager

 

Morgan Stanley (Lead Financial Adviser and Joint Corporate Broker)

Laurence Hopkins

Pawel Dela

Tom Perry

Tel: +44 (0) 20 7425 8000

 

BofA Securities (Financial Adviser and Joint Corporate Broker)

Ed Peel

James Robertson

Tel: +44 (0) 20 7628 1000

 

Media - Powerscourt

Rory Godson / Rob Greening / Sam Austrums

Tel: +44 (0) 20 7250 1446
Entain@powerscourt-group.com (mailto:Entain@powerscourt-group.com)

 

Contact for Polish Investors - Trigon Dom Maklerski S.A. (Polish Tender Offer
Intermediary)

Jan Rekowski

Tel: +48 22 330 11 11 / +48 604 574 337

 

LEI: 213800GNI3K45LQR8L28

About Entain plc

Entain plc (LSE: ENT) is a FTSE100 company and is one of the world's largest
sports betting and gaming groups, operating both online and in the retail
sector. The Group owns a comprehensive portfolio of established brands; Sports
brands include BetCity, bwin, Coral, Crystalbet, Eurobet, Ladbrokes, Neds,
Sportingbet, Sports Interaction and SuperSport; Gaming brands include Foxy
Bingo, Gala, GiocoDigitale, Ninja Casino, Optibet, Partypoker and PartyCasino.
The Group owns proprietary technology across all its core product verticals
and in addition to its B2C operations provides services to a number of
third-party customers on a B2B basis.

The Group has a 50/50 joint venture, BetMGM, a leader in sports betting and
iGaming in the US. Entain provides the technology and capabilities which power
BetMGM as well as exclusive games and products, specially developed at its
in-house gaming studios. The Group is tax resident in the UK and is the only
global operator to exclusively operate in domestically regulated or regulating
markets operating in over 40 territories.

Entain is a leader in ESG, a member of FTSE4Good, the DJSI and is AA rated by
MSCI. The Group has set a science-based target, committing to be carbon net
zero by 2035 and through the Entain Foundation supports a variety of
initiatives, focusing on safer gambling, grassroots sport, diversity in
technology and community projects. For more information see the Group's
website: www.entaingroup.com (http://www.entaingroup.com/)

About STS

STS is the leading omnichannel player in the high-growth and regulated Polish
market. The company has a diverse product portfolio with a focus on
high-growth categories including: sportsbetting, betgames, virtual sports and
e-sport (STS was the first bookmaker in Poland to introduce this). As at the
end of 2022, STS has c.2m registered players and 783k active users. STS has a
robust financial growth profile achieving +24% net gaming revenue CAGR and
+34% adjusted EBITDA CAGR since 2020. STS is led by CEO Mateusz Juroszek who
has significant experience in the Polish gaming and broader CEE market.

 

Important notices

The person responsible for arranging for the release of this announcement on
behalf of Entain is Simon Zinger (General Counsel).

This Announcement is for information only and does not itself constitute or
form part of an offer to sell or issue or the solicitation of an offer to buy
or subscribe for securities referred to herein in any jurisdiction including,
without limitation, the United States, any other Restricted Territory (as
defined below) or in any jurisdiction where such offer or solicitation is
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securities referred herein in the United Kingdom, the United States, any other
Restricted Territory or elsewhere.

 

This Announcement is restricted and is not for publication, release,
distribution or forwarding, in whole or in part, directly or indirectly, in or
into the United States of America (including its territories and possessions,
any  state of the United States and the District of Columbia (collectively,
the "United States"), Australia, Canada, the Republic of South Africa, Japan
(each a "Restricted Territory") or any other jurisdiction in which such
release, publication, distribution or forwarding would be unlawful. No public
offering of the securities referred to herein is being made in any such
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The securities referred to herein have not been and will not be registered
under the United States Securities Act of 1933, as amended (the "Securities
Act"), or with any securities regulatory authority of any state or other
jurisdiction of the United States, and may not be offered, sold or transferred
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offering of any securities referred to herein is being made in the United
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Persons distributing this Announcement must satisfy themselves that it is
lawful to do so. This Announcement is for information purposes only and shall
not constitute an offer to sell or issue or the solicitation of an offer to
buy, subscribe for or otherwise acquire securities in any jurisdiction. Any
failure to comply with this restriction may constitute a violation of the
securities laws of such jurisdictions.

No offering document or prospectus will be made available in any jurisdiction
in connection with the matters contained or referred to in this Announcement
and no such offering document or prospectus is required (in accordance with
the EU Prospectus Regulation or UK Prospectus Regulation) to be published.

Certain statements in this announcement are forward-looking statements,
including with respect to Entain's expectations, intentions and projections
regarding its future performance, strategic initiatives, anticipated events or
trends and other matters that are not historical facts and which are, by their
nature, inherently predictive, speculative and involve risks and uncertainty
because they relate to events and depend on circumstances that may or may not
occur in the future. All statements that address expectations or projections
about the future, including statements about operating performance, strategic
initiatives, objectives, market position, industry trends, general economic
conditions, expected expenditures, expected cost savings and financial results
are forward‐looking statements. Any statements contained in this
announcement that are not statements of historical fact are, or may be deemed
to be, forward‐looking statements. These forward-looking statements, which
may use words such as "aim", "anticipate", "believe", "could", "intend",
"estimate", "expect", "may", "plan", "project" or words or terms of similar
meaning or the negative thereof, are not guarantees of future performance and
are subject to known and unknown risks and uncertainties. There are a number
of factors including, but not limited to, commercial, operational, economic
and financial factors, that could cause actual results, financial condition,
performance or achievements to differ materially from those expressed or
implied by these forward-looking statements. Many of these risks and
uncertainties relate to factors that are beyond Entain's ability to control or
estimate precisely, such as changes in taxation or fiscal policy, future
market conditions, currency fluctuations, the behaviour of other market
participants, the actions of governments or governmental regulators, or other
risk factors, such as changes in the political, social and regulatory
framework in which Entain operates or in economic or technological trends or
conditions, including inflation, recession and consumer confidence, on a
global, regional or national basis. Given those risks and uncertainties,
readers are cautioned not to place undue reliance on forward-looking
statements. Forward-looking statements speak only as of the date of this
announcement. Entain and its affiliates, and any of its or their respective
directors, officers, partners, employees, advisers or agents
(collectively, "Representatives") expressly disclaim any obligation or
undertaking to update or revise publicly any forward-looking statements,
whether as a result of new information, future events or otherwise unless
required to do so by applicable law or regulation.

In particular, no statement in this announcement is intended to be a profit
forecast or profit estimate and no statement of a financial metric (including
estimates of EBITDA, profit before tax, free cash flow or net debt) should be
interpreted to mean that any financial metric for the current or future
financial years would necessarily match or exceed the historical published
position of Entain and its subsidiaries. Certain statements in this
announcement may contain estimates. The estimates set out in this announcement
have been prepared based on numerous assumptions and forecasts, some of which
are outside of Entain's influence and/or control, and is therefore inherently
uncertain and there can be no guarantee or assurance that it will be correct.
The estimates have not been audited, reviewed, verified or subject to any
procedures by Entain's auditors. Undue reliance should not be placed on them
and there can be no guarantee or assurance that they will be correct.

This announcement is being issued by and is the sole responsibility of Entain.
No representation or warranty, express or implied, is or will be made as to,
or in relation to, and no responsibility or liability is or will be accepted
by or on behalf of Entain (apart from the responsibilities or liabilities that
may be imposed by the Financial Services and Markets Act 2000, as amended or
the regulatory regime established thereunder) or by its affiliates or any of
its Representatives as to, or in relation to, the accuracy, adequacy, fairness
or completeness of this announcement or any other written or oral information
made available to or publicly available to any interested party or its
advisers or any other statement made or purported to be made by or on behalf
of Entain or any of its affiliates or any of its Representatives in connection
with Entain and any responsibility and liability whether arising in tort,
contract or otherwise therefore is expressly disclaimed.

Morgan Stanley & Co. International plc ("Morgan Stanley"), which is
authorised by the Prudential Regulation Authority and regulated by the
Financial Conduct Authority and the Prudential Regulation Authority in the
United Kingdom, is acting exclusively as financial adviser to Entain and no
one else in connection with the Acquisition. In connection with such matters,
Morgan Stanley, its affiliates and their respective directors, officers,
employees and agents will not regard any other person as their client, nor
will they be responsible to anyone other than Entain for providing the
protections afforded to clients of Morgan Stanley nor for providing advice in
connection with the Acquisition, the contents of this announcement or any
matter referred to herein.

Merrill Lynch International ("BofA Securities"), which is authorised by
the Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the UK, is acting as
corporate broker and financial adviser exclusively for Entain and for no one
else in connection with the matters referred to in this announcement and will
not be responsible to anyone other than Entain for providing the protections
afforded to its clients or for providing advice in relation to the matters
referred to in this announcement. Neither BofA Securities, nor any of its
affiliates, owes or accepts any duty, liability or responsibility whatsoever
(whether direct or indirect, whether in contract, in tort, under statute or
otherwise) to any person who is not a client of BofA Securities in
connection with this announcement, any statement contained herein or
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