Entain Woes Could Spur MGM to Consider Another Takeover Bid

Posted on: September 26, 2023, 06:29h. 

Last updated on: September 27, 2023, 01:40h.

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

The erosion in market capitalization experienced by Entain Plc (OTC: GMVHY) after the gaming company issued a tepid 2023 net gaming revenue (NGR) forecast Monday could invite another takeover offer from MGM Resorts International (NYSE: MGM).

Entain Avid
A Ladbrokes betting shop in the UK. Owner Entain could draw another takeover bid from MGM Resorts. (Image: Bloomberg)

While shares of the Coral owner rebounded on Tuesday following a substantial Monday decline, its market capitalization was just $7.16 billion at the close of the US markets or just over half the $12.93 billion MGM is valued at.

Monday’s slide also erased nearly all of the COVID-19 pandemic gains notched by Entain shares, potentially indicating that if MGM makes another offer for its BetMGM partner, the target and its shareholders could be more receptive this time. For now, that is speculation.

In January 2021, the Bellagio operator offered $11.06 billion for the Ladbrokes owner – a bid the target dismissed as inadequate. At that time, there was chatter that the suitor would up its offer, but that proved unfounded speculation.

Owing to Entain’s current market cap, MGM might be able to execute an acquisition of the company while offering a significant premium by paying less than it offered in January 2021.

State of MGM, Entain Affairs

The lay of the land pertains to Entain, and MGM is easily described. The two are 50/50 partners on BetMGM, one of the US’s largest online sportsbook and iGaming operators, and one cruising toward second-half 2023 profitability.

It’s well-known that MGM would like to control all that business, but CEO Bill Hornbuckle said earlier this year that his company was unlikely to bid anew for Entain. As for the potential target, it’s facing regulatory issues in the UK and sluggish growth in Australia and Italy.

The latest news exacerbates a downward trajectory that has seen Entain shares halve in value since October 2021. But it also creates an opportunity for Hornbuckle, who would prefer more control over the U.S. sports-betting joint venture he has with the company,” reports Reuters.

Over the past several years, speculation has mounted that MGM could look to buy out Entain’s BetMGM stake — a move that would be more economical than an outright takeover. Such a transaction hasn’t been officially floated, and it’s not clear if Entain would be receptive to it.

Entain Vulnerability Forecast

Some investors warned that missteps by Entain could invite an unwanted takeover bid from MGM or another suitor. In June, well before the revenue forecast was released on Monday, Eminence Capital CEO and Chief Investment Officer (CIO) Ricky Sandler warned that Entain’s folly in acquiring a Polish sportsbook operator could encourage undesired acquisition advances.

That hedge fund is a major Entain investor. There’s also the issue of some shareholders perhaps wishing Entain had agreed to a takeover in 2021.

Not only did MGM offer $11.06 billion for Entain that year, but DraftKings (NASDAQ: DKNG) later made a bid north of $20 billion and reportedly floated a $22 billion offer. Even the average of those figures is more than double Entain’s market value today.