After a recent court decision, analysts are split on whether a possible FanDuel IPO would be worth it.
These reactions follow a New York Court ruling that the media giant Fox is required to pay $4.16bn in order to purchase an 18.6% stake of FanDuel owned by Flutter Entertainment.
The court’s ruling resolved the issue of how much Fox could have paid for the FanDuel stake, but it did not resolve the spinoff question until the following year. The tribunal will decide early in the new year whether Fox can participate in a FanDuel IPO. This was something that Flutter raised before the dispute started.
Barclays analysts said this factor “dampened the enthusiasm” for the main ruling.
Barclays stated that “the path towards a FanDuel IPO has not been clarified, with Fox stating ‘Flutter can’t pursue an IPO on behalf of FanDuel before Fox consents or the arbitrator approves’.” Barclays said that Flutter has stated it will wait for the decision of the arbitrator or a decision between both parties if it wishes to pursue an IPO. A binding decision is expected to be made in early 2023. The path towards an IPO is not clear and Fox hasn’t yet exercised its option to reduce debt (and crystallise the value of Flutter).
Morgan Stanley analysts, however, argued that a lack of clarity regarding a FanDuel’s IPO is not a big concern as they are “ambivalent about its potential to generate shareholder value”. The analysts said the valuation trend appeared to shift more toward large, consolidated companies like Flutter than smaller parts of larger groups such as FanDuel.
Morgan Stanley stated that “while Flutter’s management highlighted the potential benefits of an IPO (incentivising FanDuel staff, visibility among retail investors and currency to be used for US-facing transactions), we view simplification as a major opportunity for the stock with a return in valuation lenses towards consolidated multiplications.
Crystallising value
Davy Research, on the other hand, looked at what a stake of 18.6% in FanDuel was worth to Fox. The report said without a spinoff, it could be too inliquid for Fox to benefit from exercising its stake.
Davy stated that it remains to be determined whether Fox chooses to use the option. In addition to the onerous licensing conditions, they would be buying a share in a company that is below FanDuel’s parent company.
Fastball agreed to sell the stake in December 2020 at a discount of almost 50% to the fair value. This reflected its desire for accelerated liquidity and price certainty, as well as its clear preference to exit its entire stake. Fox may find it equally difficult to determine the value of any investment.
Barclays also held a similar position, saying that the decision had “little effect”.
Peel Hunt has also looked at the UK Gambling Act Review, which may have an impact on Flutter brands. The report noted that Paul Scully’s claims that the review will be released “in the next few weeks” were vague enough to permit further delays.
Peel Hunt stated that “we have reached a point where any kind of clarity by the government is better than the constant shifting goalposts the industry has to endure.”
