MGM Resorts has today made an £8.1bn offer for FTSE 100 listed British gaming company Entain (formerly GVC Holdings), which owns gambling firm Ladbrokes and several other companies within the same industry.
In addition to its retail betting shops, Entain has recently been increasing the number of online betting companies, as part of the digitisation of the company.
A statement from Entain read: “The Board of Entain confirms that it has received proposals from MGM Resorts International (“MGMRI”), its partner in the US market, concerning a possible offer for Entain.
“Under the terms of its most recent proposal, MGMRI would offer 0.6 MGMRI shares for each Entain share. Based on closing prices on 31 December 2020, being the last trading day prior to this announcement, MGMRI’s proposal represents a value of 1,383 pence per Entain share and a premium of 22% to Entain’s share price. Under the terms of the proposal, Entain shareholders would own approximately 41.5% of the enlarged MGMRI. MGMRI has indicated that a limited partial cash alternative would also be made available to Entain shareholders.
“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.
“A further announcement will be made as appropriate.”
Along with Ladbrokes, it also owns brands such as Bwin, Partypoker, Coral, Eurobet, Gala and Foxy Bingo.
Entain shares rose 25.2% in early trading, or 1,419p.
Nicholas Hyett, Equity Analyst at Hargreaves Lansdown said: “Following Caesar’s offer for William Hill last year, a bid by MGM for Ladbroke’s owner Entain isn’t exactly a surprise. The two are working together to take advantage of the recent legalisation of sports betting in the US, a market worth many billions of dollars a year, and we can understand why MGM wants to take control of the business altogether.
“However, the deal is less straight forward than the bid for William Hill. William Hill can be neatly separated into a large UK business and a fledgling US operation. By comparison Entain is a far more global and more integrated operation – operating online gaming sites around the world as well as a high street estate. That makes folding the non-US operations into MGM or spinning them off separately a far greater challenge.
“Together with a relatively modest premium by recent standards – at “just” 22% – that’s led the Entain board to take a relatively dim view of the deal, rebuffing the proposal as “significantly undervaluing” the company. However, with Entain shareholder’s set to own 41.5% of the combined group under the current proposal and a significant amount of debt already on the US group’s balance sheet, a higher price may prove too much for MGM shareholders to swallow.
“While we’re long term fans of Entain, and like what the group has to offer, investors shouldn’t take this deal for granted. MGM’s first offer may have undervalued the group, but a future bid is far from guaranteed.”