Barnick: “Key synergies include the cross-sell opportunity from MGM’s land-based casino”
MGM Resorts’ attempt to buy U.K.-listed Entain with an US$11 billion bid has seen a first refusal from the online gaming business leaders, which boasts Ladbrokes and Bwin in its stable. Wagering giant Ladbrokes is already a partner with MGM in the U.S.
Under the terms of the proposal MGM is offering 0.6 of its shares for each Entain share owned, and based on closing prices on December 31, this would represent a 22 percent premium to its current share price. MGM has indicated a cash component may also be an option.
First refusal came in the form of a press release: “Entain has informed MGMRI that it believes that the proposal significantly undervalues the company and its prospects. The board has also asked MGMRI to provide additional information in respect of the strategic rationale for a combination of the two companies.”
Henry Barnick, Senior Analyst for leisure sector companies at Third Bridge, said:
“Entain has a rich history of operating sports books and this will be highly attractive to MGM as it looks to grow its sports betting offering in the US. MGM will also be keen to cross-sell its existing land-based customers into the sports betting offer”.
“Key synergies include the cross-sell opportunity from MGM’s land-based casino operations into Entain’s sports betting offer. The acquisition will improve MGM’s chances of competing with power-houses DraftKings and FanDuel, as well as offsetting the competitive threat from Caesars acquisition of William Hill”.
“Big questions remain over whether MGM will seek to integrate Entain’s UK and European assets or spin these off to an outside investor. Similarly, shareholders may worry that the current US partnership could be at risk if no deal is struck”.
Entain, which was formerly known as GVC, jointly owns BetMGM, which was set up in 2018 to take advantage of opportunities in the U.S. sports betting field.
Bernstein Research said it doesn’t expect the deal to get done without MGM offering a significantly higher price and notes that without the addition of cash to the bid, this could be dilutive to MGM shareholders, adding that it’s an opportunity to reshape MGM into a “digital betting growth franchise with a strong bricks and mortar cash generating component.” BetMGM produced revenue of between US$150 million and US$160 million in 2020 and sees this as expanding. In the short term, the Bernstein analysts said they did not expect the increased focus on digital to have an impact on MGM China, though say that longer term “we see Macau as being less core for MGM Resorts.”
