Take the deal, says Eight Capital to Score Media shareholders

Eight Capital analyst Adhir Kadve believes investors in Score Media and Gaming (theScore Stock Quote, Chart, News, Financials, Analysts TSX:SCR) would be well-served by the proposed acquisition by long-time partner Penn National Gaming. In an update to clients on Friday, Kadve changed his rating from “Buy” to “Tender,” saying the deal represents a strong validation of the Canadian online gaming opportunity.

Penn National Gaming, the parent company of U.S. media outlet Barstool Sports, announced on Thursday a definitive agreement to acquire Score Media for US$2 billion. By the deal, SCR shareholders will receive US$17.00 in cash and 0.2398 shares of Penn National for each SCR share. The news sent SCR soaring on Thursday, jumping from C$22.75/share to C$41.87/share by Friday’s close on the Toronto Stock Exchange, part of a 122.8 per cent jump in the last week.

“This deal brings together two companies that share a vision for how media and gaming intersect, and we could not be more excited to join the Penn National family,” said John Levy, theScore’s chairman and CEO, in the a joint release with Penn National on August 5. “I’m proud of theScore team and all of our accomplishments, and believe the time is right to take the next step and align with a company in Penn National with the resources and scale to accelerate our business.  We are excited to join forces with Penn to form the most powerful media and gaming company in North America.”

Looking at the deal, Kadve said buying Score Media will allow Penn to leverage SCR’s media and betting platform and combine it with Barstool’s huge following, content and personalities, effectively creating “a leading North American media+betting company, with a unique ability to acquire customers who are highly engaged, which is similar to what theScore and PENN were attempting to create individually,” Kadve wrote.

With the deal expected to close in the first quarter of 2022, Kadve estimates SCR shareholders would receive a premium greater than 80 per cent in relation to theScore’s August 4 closing price of $21.68/share. Upon completion, theScore shareholders will own seven per cent of PENN’s outstanding common shares.

Score Media and Gaming enlists millions of sports fans through its digital media and sports betting products. Its media app – theScore – is one of the most popular in North America, delivering fans highly personalized live scores, news, stats, and betting information from their favorite teams, leagues, and players. The Company’s sports betting app – theScore Bet – delivers an immersive and holistic mobile sports betting experience and is currently available to place wagers in New Jersey, Colorado, Indiana and Iowa.

The company reported its third quarter financial results on July 13, with media revenue up 270 per cent year-over-year to $8.9 million, while theScore Bet’s gaming handle generated $73 million in revenue, including a single-month high of $30.8 million wagered in March.

EBITDA loss in the quarter grew to $21.1 million compared to an $8.7 million loss in the same quarter of 2020, driven by additional expenses relating to the company’s expanded gaming operations, along with costs related to the company’s recently completed initial public offering in the United States.

The company has also had significant engagement on its primary sports app, recording a record 470.2 million user sessions in the quarter, with users opening the app an average of 126.1` times per month. The company also reported an average monthly reach of approximately 172 million users across its social media platforms (Twitter, Facebook, Instagram and TikTok), while its esports platforms registered 241 million total video views in the quarter.

theScore is in a strong position to make even greater inroads within Canada after the Canadian Senate passed Bill C-218, an amendment to the Criminal Code which will legalize single event sports betting in Canada.

“The forthcoming legalization of single event sports betting presents a substantial growth opportunity for our integrated media and betting business,” Levy said on June 22. “theScore is Canada’s leading digital sports media brand and we are eager to bring our award-winning mobile sportsbook, theScore Bet, to fans on our home turf. We have been actively preparing for the expansion of online sports betting and iGaming in our home province of Ontario, which is expected to commence later this year, and we are very favorably positioned to succeed given our mobile betting experience and vast active user base.”

Kadve believes the transaction premium theScore shareholders would receive is indicative of the potential of online gaming in Canada, with a particular emphasis on Ontario.

“Ontario, with its large population of nearly 11.4 million adults, would represent the fifth largest jurisdiction in North America and we believe Canada as a whole represents a market opportunity valued at a plus-$4 billion,” he said. “With PENN’s backing and by leveraging its strong brand and loyal user base, we see theScore being even more aggressive with its growth playbook in Canada and capturing a market leading position on its home turf.”