Fox Corp. (NASDAQ:FOXA) is reportedly suing Flutter Entertainment (OTC:PDYPY) over the price the Irish gaming company wants the media company to pay to acquire an 18.6 percent stake in online sportsbook operator FanDuel.
It’s long been known that the broadcasting giant plans to acquire a larger slice of FanDuel. But Flutter wants what it believes is fair market value, while Fox wants the price the parent company paid – $4.175 billion last December – when it bought out Fastball’s 37.2 percent interest in FanDuel.
As Fox would be buying half that amount, it likely believes the 18.6 percent stake is worth $2.08 billion.
Earlier this afternoon, CNBC reported that Fox confidentially filed a suit against Flutter last week in New York’s Judicial Arbitration and Mediation Services (JAMS). JAMS isn’t a traditional court of law, but its decisions are binding and gives parties a more efficient avenue for settling disputes.
“JAMS successfully resolves and manages business and legal disputes by providing efficient, cost-effective, and impartial ways of overcoming barriers at any stage of conflict,” according to the organization’s web site.
It’s easy to see why there’s a dispute, because the discrepancy between what Fox wants to pay and what Flutter believes is fair market value is undoubtedly wide. The Irish company is mulling a spin-off of FanDuel to more appropriately value the business. Translation: It wants to capture a valuation on par with, or in excess of, rival DraftKings (NASDAQ:DKNG).
As of April 6, DraftKings’ market capitalization is $24.75 billion. On that basis, the 18.6 percent of FanDuel Fox is seeking to acquire is worth $4.59 billion. However, the figure could easily be higher, because FanDuel is larger than DraftKings, meaning a transaction that separates the former from Flutter could value it an amount larger than its competitor’s market cap.
Flutter, Fox Set to Butt Heads
On the company’s earnings conference call in March, Flutter CEO Peter Jackson said his company will honor the agreement to allow Fox to buy 18.6 percent of FanDuel. However, he made clear the media company would be held to a fair market value standard, which he said would have applied to Fastball had that consortium maintained its FanDuel investment.
To be clear on the valuation, Fox will have to pay the fair market value, which is different from the negotiated price agreed between Flutter and Fastball, which reflected the specific circumstances that Fastball found itself in,” said Jackson.
That’s almost assuredly not to Fox’s liking, because if DraftKings serves as an accurate template, that stock rose roughly 20 percent from the time the Flutter/Fastball transaction was announced through the day Jackson made those remarks.
A spin-off could further complicate matters, because that action could run the value of FanDuel higher, potentially forcing Fox to pay even more, assuming it’s not successful with its challenge before JAMS.
Speaking of Complications…
In engaging Flutter in litigation, Fox is pressing a company in which it owns 2.5 percent, making it one of Flutter’s largest shareholders.
That relationship stems from Fox selling Sky Bet to The Stars Group (TSG) in 2018 for $4.7 billion. Last year, Flutter shelled out $12.2 billion for TSG, which at the time owned Fox’s FOX Bet unit.
FOX Bet further muddies the waters. It’s a competitor to FanDuel, albeit a lagging one. Fox is reportedly pushing Flutter to merge FanDuel, FOX Bet, and PokerStars, and spin out the combined entity. The media company has an option to eventually acquire half of TSG’s US operations, indicating it’d be in for a big payday if the two sportsbook operators and the poker unit are combined and spun out to public investors.
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