TheScore stock soars 75% on US$2 billion offer from Penn National Gaming

Shares of Score Media and Gaming (SCR.TO)(SCR) climbed 75 per cent on Thursday after the Canadian sports betting and media firm announced a plan to be acquired by Pennsylvania-based gaming and casino giant Penn National Gaming (PENN) in a US$2-billion cash and stock deal.

The companies said in a joint news release on Thursday that the combination will create "North America's leading digital sports content, gaming and technology company." Penn owns a 36 per cent stake in the popular online sportsbook Barstool Sports.

TheScore's stock, which trades on the Nasdaq and Toronto Stock Exchange, was halted before the start of trading on Thursday. Toronto-listed shares were up 74.95 per cent to $39.83 at 10:30 a.m. ET. Nasdaq-listed Penn shares rose 1.89 per cent to US$67.50.

Big U.S. gaming firms have fixated on Canada's sports betting market in recent months as Bill C-218, legislation to allow bets on individual sporting events, was passed by parliament. Previously, sports bets in Canada had to include at least two events in a single wager, known as parlay wagering. The interest fuelled speculation that theScore would eventually fall into U.S. hands. The company has launched its digital sportsbook in four of U.S. states, with plans to add more, ahead of a launch in Canada.

"This really is a transformational deal," theScore CEO John Levy said on a conference call with analysts on Thursday morning. "We've admired how Penn has strategically built their business. When this opportunity arose, it was clear that there was a natural alignment."

"In the near term, we'll just be scratching the surface of where we can ultimately take this company," Penn National CEO Jay Snowden added on the call.

TheScore, a family-led company based in Toronto, and Penn, one of the largest casino operators in the U.S., have had a strategic partnership since 2019. Penn owns a 4.5 per cent equity stake in theScore. The partnership has allowed the Canadian company to access sports betting licences in states where Penn operates casinos and racetracks.

According to analysts who recently spoke to Yahoo Finance Canada, theScore's betting app has about a one per cent market share in the U.S. states where it's launched, as larger rivals like DraftKings (DKNG) outspend the much smaller Canadian company on advertising and marketing. TheScore's performance in sports betting is expected to be stronger in Canada, where the company has built a formidable audience through its main sports news and data mobile app.

Levy says two-thirds of theScore's users actually come from the States. These include Snowden, and Dave Portnoy, the widely-popular and bombastic founder of Barstool Sports. Portnoy says he has used theScore's main app for the past 10 to 15 years, and even sought a partnership with the company prior to Barstool's involvement with Penn.

"It's been a long time coming," Portnoy said. "It just fits so perfectly. I've said all along, the company . . . that I would want to work with is theScore."

Under the terms of the deal, theScore shareholders will receive US$17 in cash and 0.2398 of a Penn National share for each share of theScore. The companies say this represents a total purchase consideration of US$34.00 per theScore share, based on Penn's five-day volume-weighted average trading price as of July 30. Upon completion, Penn National and theScore shareholders will hold approximately 93 per cent and 7 per cent, respectively, of the combined company's outstanding shares.

"We believe the transaction consideration of US$34 per share is fair, representing an 87 per cent premium to SCR's last closing price," Macquarie Capital analyst Chad Beynon wrote in a research note on Thursday. "In our view, the transaction will create a unified media and betting offering that is unique in the industry, and further differentiates Penn's approach."

The deal requires approval from regulators, gaming authorities and shareholders of theScore. Penn National said in the news release that it has entered into voting support agreement with the directors of theScore, including John Levy, chief operating officer Benjamin Levy, and Relay Ventures, a significant company shareholder. The companies say this represents about 30 per cent of the existing voting shares of theScore.

John Levy founded theScore as a cable TV channel in the mid-1990s that initially broadcast a text-based scroll of sports scores and statistics, before selling the TV channel to Rogers Communications (RCI-B.TO) and pivoting to a digital media model. According to Thursday's news release, Penn plans to run theScore as a stand-alone business, headquartered in Toronto, that will continue to be led by the Levy family.

Matias Dorta, an analyst at New York-based Roundhill Investments, told Yahoo Finance Canada last month that he saw theScore's value mainly as an acquisition target for a U.S. firm. Dorta questioned if the company was looking to "conquer as much land as possible" south of the border ahead of a deal.

"Even just the footprint is valuable," he said in an interview. "Someone like theScore, who let's say does take a meaningful market position in Canada, and then just has the licences and fiscal [details] figured on the U.S. side, being live in like 10 states, that could be attractive for a potential acquirer."

Penn's businesses span casinos, hotels, and online gaming, with 43 properties in 20 U.S. states. The company dwarfs theScore, with a US$11 billion market capitalization, versus theScore's $2 billion.

Penn reported second-quarter financial results on Thursday, and says the potential acquisition of theScore would boost its profit by more than US$200 million, two years after closing. Both companies say they expect the combination will be mutually beneficial on the technology side, allowing for a more robust user experience with a host of complex betting features like live in-game betting.

The legalization of single-sports betting in Canada could see as much as $28 billion in wagers placed annually five years after legalization, according to Deloitte Canada. Bill C-218 cleared its final political hurdle in Canada's Senate and received royal assent to become law last month. However, Prime Minister Justin Trudeau and the Justice Department have not provided a date for the new law to come into force.

Snowden says he expects theScore Bet app will be able to go live in Ontario in December or January.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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