Why are Pointsbet shares plunging 58% today?

This sports betting company's shares are being crushed. But what's the real reason for this?

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Pointsbet Holdings Ltd (ASX: PBH) shares are being crushed on Wednesday.

In morning trade, the sports betting company's shares are down 58% to a multi-year low of 70 cents.

What's going on with Pointsbet shares?

The good news for shareholders is that today's huge decline is actually a positive thing.

Last week, Pointsbet announced the initial completion of the sale of its US business to Fanatics Betting and Gaming. The company revealed that it received US$175 million (plus agreed adjustments), representing the initial instalment of the headline purchase price of US$225 million.

Following the sale, the company transferred its Advanced Deposit Wagering (ADW) racing business and the operating businesses in eight US states to Fanatics Betting and Gaming. The remaining US state operations will transfer once applicable gaming approvals are obtained.

So why are its shares falling?

Instead of reinvesting the proceeds of the sale, Pointsbet decided to return the proceeds from the US business sale to shareholders via two capital return tranches.

The first tranche will see the company return A$315.41 million or A$1 per share.

This morning, Pointsbet's shares traded ex-return of capital for this payout. This means the rights to the capital return are now settled and anyone buying the company's shares today will not receive the payment.

In light of this, its shares have fallen to reflect this. After all, you wouldn't want to pay for something that you won't receive.

Speaking of which, if you are eligible to receive this A$1 per share capital return, you can now look forward to pay day 22 September.

What about tax? Pointsbet is seeking a class ruling from the Australian Taxation Office (ATO) to confirm key tax implications for shareholders receiving both capital returns. However, a final class ruling isn't expected until after the scheme is completed.

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. has positions in and has recommended PointsBet. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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