MGM Resorts International has launched an audacious bid to acquire the gambling behemoth Entain.
The US casino firm has slapped an £8.1 billion offer on the table for the UK-based conglomerate, although the initial indications are that the bid will be rejected as Entain officials believe it ‘undervalues’ the company.
This isn’t a hostile takeover in the truest sense of the word as Entain and MGM are joint venture partners, but even so the acquisition bid has come as something of a surprise to the firm formerly known as GVC Holdings.
In theory, the takeover would mean that MGM would take over the running of Entain’s gambling brands, which include PartyCasino, PartyPoker, Gala, Casino King and sports betting firms Coral, Ladbrokes and BETDAQ.
And it may just be Entain’s shareholders that have the last laugh, with the firm’s share price currently up 25% for the day to £14.30 – ironically higher than MGM’s initial takeover offer.
This isn’t the first time that a predominantly UK focused gambling firm has been acquired by a US casino operator, with Caesars Entertainment’s £2 million takeover of William Hill now ratified.
MGM Eye Global Domination
While Entain’s network of brands has a global appeal, there’s no doubt that it is in the UK market where they are truly dominant.
Ladbrokes and Coral enjoy a huge slice of the UK sports betting sector, and their associated firms in casino, bingo and poker also enjoy considerable market share.
For now, Entain are set to reject the initial offering, with a bid of 0.6 MGM shares per Entain share – a valuation of around 1,383 pence each – representing a 22% mark-up on the UK firm’s current value.
The terms of the offer would see MGM shareholders take control of 58.5% of the new combined operation, however Entain on behalf of their shareholders have requested more information from the US operator with regards to its proposed strategic direction for any subsequent firm that is created.
“The board has also asked MGMRI to provide additional information in respect of the strategic rationale for a combination of the two companies,” their statement read.
The City Code on Takeovers and Mergers outlines the rules for takeover action, and under Rule 2.6(a) MGM must now make a formal bid for Entain by 5pm on February 1….or otherwise announce its declaration not to make an offer.
Keep Your Enemies Close
The takeover bid is a huge surprise given that Entain and MGM have worked together on an equal footing since July 2018, when they pooled their resources to form the BetMGM platform – a sports betting and iGaming firm in the United States.
Almost one year to the day that BetMGM was formed, the two firms came together again to commit to a second round of investment in their new project – bringing the complete spend to a sizable $450 million.
BetMGM is currently live in seven states and will go mobile in 2021 in both Virginia and Michigan, and is expected to be something of a cash cow for the group in the burgeoning US sports betting sector.
However, David Brohan – an analyst for stockbroker firm Goodbody – has claimed that joint projects rarely go as smoothly as planned. “The two groups have an existing joint venture which has potential to be a leading player in US sports betting and iGaming, and a joint venture structure is never likely to last indefinitely,” he said to the Racing Post.
“In addition, the sports betting and iGaming opportunity is something that large US gaming groups want to control and own fully themselves – and Caesars’ move for William Hill last year is an obvious example of this.”
A Growing Footprint
It’s fair to say that 2020 as a year will haunt us for a long time, and it had a significant impact on how gambling firms go about their business.
MGM Resorts focuses solely on land-based casinos, BetMGM aside, and their revenue has taken an almighty hit due to the coronavirus pandemic.
On the flipside, online casino gaming and sports betting have enjoyed an uptick in popularity, and so MGM – powered by wealthy investment firm IAC, who purchased a 12% stake in the firm in August – are clearly looking to diversify and spread their risk.
The chief executive of IAC, Barry Diller, stated that he was working with MGM to expand their online gambling portfolio both in the US and overseas, and that comment came barely a year prior to MGM laying off more than 18,000 employees at their sites around the globe.