Posted on: September 11, 2024, 09:47h.
Last updated on: September 11, 2024, 09:47h.
Fox Corp. (NASDAQ: FOX) might be gearing up to acquire an 18.6% interest in Flutter Entertainment’s (NYSE:FLUT) FanDuel, and the media behemoth could do so at a notable discount to the sportsbook operator’s market value.
During the Goldman Sachs Communacopia and Technology Conference, Fox CEO Lachlan Murdoch revealed that the media company is moving forward with plans to acquire an 18.6% stake in FanDuel. This right was obtained in 2020 when Flutter paid $12.2 billion for The Stars Group (TSG). In 2018, Fox sold Sky Bet to TSG for $4.7 billion, along with taking an equity stake in the buyer.
Murdoch indicated at the conference that Fox values FanDuel at $35 billion, making 18.6% of that worth $6.5 billion. If this valuation is accurate, it suggests that FanDuel is worth $17.22 billion more than its closest competitor, DraftKings (NASDAQ:DKNG), which had a market capitalization of $17.78 billion at the close of US markets on Wednesday.
Fox Won’t Leave $2 Billion on the Table, Says Murdoch
The $6.5 billion figure exceeds Fox’s previous estimate of $4.3 billion needed to acquire the 18.6% stake in FanDuel. The company must be a licensed sportsbook operator in the states where FanDuel operates in order to make the purchase. Murdoch mentioned at the conference that Fox is addressing this licensing requirement.
We’re not going to leave $2 billion on the table,” he said.
It’s evident that FanDuel has significantly increased in value. Following a legal dispute in 2022 between Flutter and Fox, the latter agreed to purchase the 18.6% stake in FanDuel for $3.72 billion with a 5% annual escalator, meaning the price would increase by 5% each year the option wasn’t exercised.
“FOX has a 10-year call option valid until December 2030 to acquire 18.6% of FanDuel for $3.72 billion, with a 5% annual escalator,” a statement from the media company in November 2022 revealed. “FOX is not obligated to commit capital to this opportunity unless and until it exercises the option.”
Murdoch mentioned that Fox has already started the process of obtaining state gaming permits.
“We’ve begun the process with state regulators,” Murdoch said. “To fully monetize the option, we need to be licensed as a gaming operator, even with only with only 18.6% and so we’ve started that process with state regulators to begin the gaming licensing approvals.”
Where’s Fox Going to Come up with $4.3 Billion?
Murdoch did not elaborate on how Fox plans to raise the $4.3 billion required to activate its stake in FanDuel. Interestingly, by the end of fiscal 2024, the media entity had $4.31 billion in cash and cash equivalents.
The CEO mentioned at the Goldman conference that Fox is open to mergers and acquisitions, potentially multiple deals, to strengthen its news and sports divisions. These transactions would necessitate capital.
There was no mention of the possibility of issuing debt to fund acquisitions or the purchase of the FanDuel stake.