Why the PointsBet (ASX:PBH) share price is crashing 12% lower on Tuesday

PointsBet shares are tumbling on Tuesday…

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The PointsBet Holdings Ltd (ASX: PBH) share price has returned from its trading halt and is tumbling lower.

In early trade, the sports betting company’s shares are down 12% to $9.93.

Why is the PointsBet share price tumbling?

The catalyst for the weakness in the PointsBet share price on Tuesday has been the completion of its institutional entitlement offer.

According to the release, the company has raised $81 million via a 1 for 9 fully underwritten pro rata accelerated renounceable entitlement offer. This offer was strongly supported by Australian and international institutional shareholders.

These funds were raised at a 29% discount of $8.00 per share. In addition, the institutional shortfall bookbuild then cleared at $10.00, which is a 25% premium to the entitlement offer price.

In respect to the latter, the eligible institutional shareholders who did not elect to take up their entitlements (and ineligible institutional shareholders) will receive $2.00 for each entitlement sold through the auction.

What’s next?

The company has already completed its institutional placement to raise a further $215.1 million at $10.00 per new PointsBet share.

It will now undertake a retail entitlement offer at $8.00 per share. This will bring the total raised to $400 million.

Why is PointsBet raising funds?

PointsBet is raising funds to support its North American marketing and client acquisition, technology and product development, US market access and government licensing fees, and its investment in talent and the scaling of its operations.

PointsBet’s Managing Director and Group CEO, Sam Swanell, commented: “Since inception, PointsBet’s Board and management have been working to establish and consolidate the key building blocks that have put us in the strong position we are today to pursue the expansion of the North American sports betting and iGaming opportunity.”

“Today, in addition to our profitable Australian business, we have live operations in 6 US States with iGaming live in two of these states. By December 2022 we plan to be live in at least 19 North American states or provinces. The North American sports betting and iGaming market could be a US$54bn revenue opportunity by 2033 and our strategy is to continue to invest to become a top 5 player in this market, targeting a 10% market share in all key North American jurisdictions. The Capital Raising will position PointsBet to execute this strategy,” he added.

Despite today’s decline, the PointsBet share price is still up more than 100% over the last 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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