MGM Resorts Is Entertaining a Takeover of BetMGM Partner Entain

Posted on: January 3, 2021, 04:06h. 

Last updated on: January 3, 2021, 05:12h.

MGM Resorts International (NYSE:MGM) is reportedly looking to acquire Entain Plc (OTC:GMHY), the UK-based company formerly known as GVC Holdings that’s the casino operator’s partner in the BetMGM online gaming and sports wagering business.

The Wall Street Journal reported the rumor earlier today, citing unidentified sources and claiming the Bellagio operator recently made a $10 billion offer for the UK-based company that was rejected. It’s not immediately clear what MGM’s new offer for the prospective target is, but it is believed the proposal comes with financial support from Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC).

In August, IAC revealed a $1 billion stake in the Las Vegas-based company, equivalent to 12 percent of shares outstanding. Entain has a market capitalization of $9 billion. It’s believed MGM’s latest offer is a mixture of cash and equity and above the $17.56 a share that was pitched last year. Entain’s US-listed shares closed at $15.70 last Friday.

Following the recent sale of $700 million worth of units in gaming real estate investment trust (REIT) MGM Growth Properties (NYSE:MGP), the second such move made by MGM last year, the Mandalay Bay operator has $5.9 billion in liquidity.

Precedent Set

Under the current terms of the BetMGM arrangement, the casino operator and Entain split the economics. But with the US iGaming and sports wagering industries taking off, brick-and-mortar gaming companies are looking for higher margin, less cost-intensive businesses, and can potentially find willing sellers among partners.

MGM may have taken a cue from that deal, because Wall Street is voicing preference for companies that have full control of their internet gaming and sports wagering operations over those that are constructed as partnerships, as is the case with BetMGM.

Ladbrokes owner GVC and the casino company formed BetMGM in 2018, allocating $200 million to get the business going. The partners boosted that total to $450 million last July.

Good Time for a Deal

Entain shares jumped 25 percent last year, and if that rally continues, MGM or any other prospective buyer would be forced to pay up for the British company.

For now, it’s not immediately clear if Entain will accept any takeover proposal, or what MGM’s plans would be for the seller’s European retail business, assuming an offer is accepted. Caesars will almost certainly shed William Hill’s international operations when that transaction is completed.

For MGM, it makes sense to acquire Entain, because in the BetMGM agreement, the latter provides technology services. But the unit derives benefit from the gaming company’s well-known brand and land-based operations in select states, positioning it capture iGaming licenses in those locations.

BetMGM is the fifth-largest online sports betting provider in the US and is operational in 10 states, a figure that’s forecast to double over the course of 2021.