Playtech Activist Investor Floats Idea of Takeover by DraftKings

(Bloomberg) -- It’s been a tough day for DraftKings Inc., with the online gambling company reporting a steeper-than-expected loss and facing a tax issue that could squeeze it even more.

Jason Ader, a longtime casino-industry investor, think he knows what could help. He’s pitching the idea of DraftKings acquiring one of his holdings, the European gaming company Playtech Plc, as a way to shore up profit.

Playtech, an established player in Europe, generated earnings before interest, taxes, depreciation and amortization of 383 million euros ($453 million) last year. But its market value is less than $2 billion, compared with about $12 billion for the money-losing DraftKings, Ader notes.

“They should be making a stock-for-stock deal with Playtech,” he said in an interview. “If I were on their board, that’s what I’d be saying.”

Playtech declined to comment. A spokesman for Boston-based DraftKings didn’t immediately respond to a request for comment.

Of course, Ader has plenty of reason to encourage a Playtech takeover. As co-founder of New York-based SpringOwl Asset Management, he is one of its biggest investors -- with just under 5% of the stock, he says. But Ader has a track record of spurring companies to make deals.

At SpringOwl, he persuaded European online operator 888 Holdings Plc to make an offer for Bwin.Party Digital Entertainment, where he was a large shareholder. Bwin was acquired at a higher price by GVC Holdings Plc in 2016. Ader also bought a big stake in Stars Group Inc. and pushed for its merger with Flutter Entertainment Plc, a deal that closed in May.

A former casino analyst, Ader sat on the board of Las Vegas Sands Corp. for eight years. More recently, he’s been pressing Playtech to make changes. In 2018, he urged the company to focus on its core gaming business.

DraftKings has been receptive to deals in general. Chief Executive Officer Jason Robins said on a conference call Friday that the company is continuing to look at acquisition targets.

“There could be some opportunities that perhaps would not have otherwise presented themselves, but might, given the events in the last few months,” Robins said. “We are also very bullish on the overall market, and if we can find assets that are very complementary -- that as we grow in our core businesses we also see growing alongside it -- that’s something that could also be attractive.”

DraftKings, the pioneer in fantasy sports wagering, began trading publicly in April following a merger with Diamond Eagle Acquisition Corp., a shell company, and SB Tech, a closely held online operator.

Its share price has soared since then, but DraftKings hit some bumps on Friday. In addition to posting a wider loss than predicted, it had fewer monthly unique players -- a key measure -- than analysts projected.

The Internal Revenue Service also dropped a bombshell: Companies like DraftKings and FanDuel must pay federal excise tax on their entry fees -- levies that could add up to millions of dollars.

Robins said the IRS memo was “flawed” and not enforceable, and that the company would continue to argue its case. But the shares plunged as much as 10%.

Ader said he wasn’t concerned about the tax issue. “It’s is more of an annoyance than a material adverse change to the business,” he said.

But DraftKings is “wildly overvalued just on every metric,” he said. A Playtech deal could bring in an additional 100 million euros in annual profit, if the combined companies were run more efficiently, Ader said.

“That’s damn close to justifying in its valuation,” he said.

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