MGM Overture for Entain Could Be Renewed, Says Third Bridge Analyst

Posted on: April 15, 2021, 10:10h. 

Last updated on: April 15, 2021, 10:30h.

It’s been more than three months since MGM Resorts International (NYSE:MGM) attempted to acquire Entain Plc (OTC:GMVHY), its partner on the BetMGM business. At least one analyst believes speculation on this matter won’t die down anytime soon.

The British bookmaker rejected an $11.06 billion offer from the Bellagio operator, deeming it inadequate, although it valued the sportsbook firm at a 22 percent premium to its London closing price just days prior to the proposal being made public.

MGM and Entain share the economics of the BetMGM unit, which is structured as a 50/50 joint venture. That means the benefits of sports wagering growth don’t flow entirely to either company, explaining why the casino operator made a run at its UK-based partner.

Investors will continue to speculate whether MGM and Entain could strengthen their relationship by combining operations,” said Third Bridge senior analyst Harry Barnick in a note.

In the gaming industry, there is a template of US and UK companies teaming up on online gaming and sports wagering, only to see that relationship morph into an outright takeover. Caesars Entertainment (NASDAQ:CZR) is nearing completion of its $3.69 billion purchase of William Hill (OTC:WIMHY).

Entain Different Beast

A key difference between the Caesars/William Hill and MGM/Entain situations is that Caesars had leverage over the British sportsbook firm. If the target opted for another takeover bid, the Harrah’s operator would have scrapped its US agreement, perhaps making it less attractive to a suitor.

MGM doesn’t have such a sword to wield at Entain. Immediately following the Ladbrokes owner rejecting the Mirage operator’s offer, there was chatter that the 0.6 shares for each Entain share the Las Vegas-based company offered wasn’t enough, and that the target was seeking a higher cash component. By Jan. 19, MGM decided against making a revised bid.

While the Mandalay Bay operator hasn’t given any indications that’s considering another run at its BetMGM partner, it has the resources to do so.

MGM’s $20.60 billion market capitalization is more than double Entain’s $9.51 billion. Plus, the casino operator has more than $7 billion in cash on hand and could approach Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC) – its largest investor – for financing to revisit an offer for Entain. IAC took a $1 billion stake in MGM last year and voiced support for the Entain deal.

Deal Makes Sense for Both Sides

The US is the fastest-growing sports betting market in the world, and Entain investors want to see the company add share here.

“The US market has grown faster than punters might have expected,” said Barnick. “Entain’s future growth now hinges on its ability to gain market share in this region. This will pose a significant challenge, given the strong competition from DraftKings and FanDuel.”

In order, FanDuel, DraftKings, and BetMGM are the top three online sports betting operators in the US. But the MGM/Entain venture is well behind its larger rivals.