Entain Plc has disclosed additional information related to its legal challenge against Sports Entertainment Media BV and related parties involved in the valuation of its Netherlands subsidiary, BetCity.nl.
Documents published by the High Court of England and Wales detail that the board of the FTSE100 gambling group deems the value of BetCity.nl as being €68m-to-€156m less than its agreed deal with Sports Entertainment BV.
Entain, which has accused Sports Entertainment BV and the company founders, the Singels family, of concealing information related to regulatory infringements at BetCity.nl, is pursuing a legal challenge.
In 2022, Entain agreed terms to acquire BetEnt BV, the Dutch KOA licensed operator of BetCity.nl, for a valuation of €850m. The initial deal terms resulted in Entain acquiring the shareholding of Sports Entertainment Media BV for a cash offer of €300m.
Entain’s deal included performance reward incentives of €550m, which would elevate its M&A offer to above the €800m mark, contingent on BetCity.nl generating 10x EBITDA for the financial year 2023.
However, in 2023, BetCity.nl was fined €3m for significant failures to comply with the Netherlands Money Laundering and Terrorism Financing Prevention Act (Wwft) – infringements which Entain cites as having been concealed by Sports Entertainment Media BV and associated parties.
Entain justified the premium on BetCity, stating that it had acquired a podium-placed operator within the newly regulated Dutch online gambling market, following the approval of the Netherlands’ Remote Gambling Act (KOA Act) in October 2021..
Represented by Clifford Chance, Entain provided an initial estimate of damages caused by the former owners’ breached deal covenants to be in the range of €68m-to-€156m.
As detailed by the document: “Without prejudice to the matters set out above, the Claimant’s most recent good faith calculation is that the damage it has suffered from the Defendants’ breach of warranty totals between €68 million and €156 million, though as set out below, an alternative assessment method produces a range of potential losses of €58 million to €124 million. This is the case whether the Claimant’s loss is assessed at the date of the SPA, or at the date of Completion.”
Entain has provided two calculations to estimate the damages from Sports Entertainment Media BV breaching deal covenants. Assuming increased risks due to violations, Entain details an estimated reduction in BetCity.nl’s value by €124m based on an increased Weighted Average Cost of Capital (WACC) from 10% to 12.5%.
The second calculation is based on the adjusted future cash flows of BetCity.nl, wherein Entain presumes that 2024 revenue will be between 28-32% lower than expected. Consequently, this downturn will result in an asset value decrease of €136 million to €156 million, which Entain has cautiously adjusted to between €68m and €156m.
For both calculations, Entain assumes that BetCity.nl’s performance will be negatively impacted by stricter supervision and loss of reputation.
As detailed to investors, Entain has allocated £40m for compliance costs in its H1 2024 accounts to address upcoming regulatory changes in the UK and the Netherlands.
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