MGM Could Mull Another Offer for Entain at 50 Percent Premium, Says Citi Analyst

Posted on: July 8, 2022, 01:59h. 

Last updated on: July 8, 2022, 02:21h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

MGM Resorts International (NYSE:MGM) could ready another takeover offer for its BetMGM partner Entain Plc (OTC:GMVHY) after failing in that pursuit in January 2021.

MGM Entain
A Ladbrokes betting shop in the UK. Operator Entain could receive another takeover bid from MGM. (Image: Reuters)

A combination of Entain’s slumping share price and the US dollar’s strength relative to the British pound could compel the Bellagio operator to revisit a bid for the Ladbrokes owner, according to Citi analyst Monique Pollard. MGM has made clear it would like to gain majority or full control of BetMGM. As it stands today, the casino giant and Entain are 50/50 partners in the iGaming and sportsbook entity.

Like other gaming equities, Entain is faltering this year. But MGM would still need to offer a sizable premium if it makes another offer. Citi’s Pollard believes the Cosmopolitan operator needs to propose a premium that’s at least 50% above the Coral owner’s current share price, and that the suitor would need to fund the majority of the bid in shares.

In January 2021, MGM offered $11.06 billion for Entain, or 0.6 of one of its shares, after the target rejected a $10 billion proposal. At the time, that was equivalent to a 22% premium. The British bookmaker ultimately rebuffed the second proposal, and MGM didn’t raise that ofer.

Entain Still Alluring for Suitors

Last September, DraftKings (NASDAQ:DKNG) rocked the gaming world, offering $20 billion in cash and equity for Entain. The suitor later floated a $22.4 billion cash and stock bid. But no deal was consummated, and Entain CEO Jette Nygaard-Andersen later acknowledged BetMGM hindered a marriage with DraftKings.

That’s a reminder to what many market observers already know: While Entain is a potentially desirable target for a variety of bidders, MGM is the prospective buyer that makes the most sense, owing to the structure of BetMGM. As was seen during the DraftKings talks, MGM’s consent is needed if Entain plans to merge with a competing US entity.

There are other reasons MGM may reconsider a bid for Entain. With the online casinos and sports wagering industries taking off in the US, it makes sense for MGM to want to keep those economic benefits in-house — something that’s not happening today because it’s sharing profits with Entain.

Acquiring Entain would help the casino operator reduce dependence on land-based casinos as revenue drivers, while diversifying its earnings stream and product offerings. Additionally, MGM could combine its own highly recognizable brand with Entain labels, such as Ladbrokes, Coral, and Partypoker, to create a global online gaming juggernaut.

Additionally, Entain’s sizable European footprint could be complementary to MGM’s pending $607 million acquisition of Sweden’s LeoVegas AB.

BetMGM Thriving

In the states in which it operates, BetMGM is the leading internet casino provider, and one of the top three online sportsbook operators, underscoring why MGM wants full control of the unit.

“Customer engagement remains as strong as ever, and on a same state basis, BetMGM continues to deliver growth of over 30%. In Ontario, it’s still relatively early days. But despite it being highly competitive, in June, BetMGM saw over 80 million transactions in the month,” said Entain CFO Rob Wood on a Thursday conference call. “With BetMGM continuing to deliver, we remain on track with our ambition of over $1.3 billion of net gaming revenue this year, and reaching positive EBITDA during 2023.”

With a possible Entain purchase, MGM would accomplish the goal of moving BetMGM into new countries. That’s because the Ladbrokes owner is one of the most visible sportsbook operators in the UK, throughout Europe, and in Australia.