MGM Could Revisit Entain Takeover Following UK Whitepaper Release

Posted on: January 19, 2023, 03:29h. 

Last updated on: January 19, 2023, 05:30h.

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

The highly anticipated release of the UK government’s Gambling Act whitepaper could set the stage for MGM Resorts International (NYSE: MGM) to revisit a takeover of Entain Plc (OTC: GMVHY).

MGM Entain
A photo shows that inside of an Entain office, above. Rumors are circulating that MGM could make another offer for the company. (Image: Front Office Sports)

Shares of the Ladbrokes owner rallied in London and gained almost 4% in US trading following a Thursday CTFN media report noting the Las Vegas-based casino giant and the British sportsbook operator could renew takeover talks. That target for renewal is when the UK Gambling Commission (UKGC) releases its regulatory paper, which could happen in late March. CTFN cited an unidentified industry source and an investment banker.

MGM and Entain are 50/50 partners in the BetMGM business. That’s the largest internet casino operator in the US and one of the dominant providers of sports wagering services.

Roughly two years ago, the Bellagio operator bid $11.06 billion for Entain, which dismissed the offer as inadequate. Under the terms of that offer, Entain stakeholders would have received 0.6 shares in the suitor for each share of the target they own, meaning Entain investors would own 41.5% of the combined company. MGM didn’t put forth a higher bid and the talks collapsed.

Why the UKGC Whitepaper Matters

In terms of a possible MGM/Entain marriage, the guidelines set forth in the whitepaper are potentially pertinent because they’re expected to include how the UKGC regulates companies with overseas exposure.

With its 50% interest in BetMGM and increasing footprint across Europe, one fueled by a spate of recent acquisitions, Entain clearly checks the box as a UK-based gaming company with a sizable portfolio located outside that nation.

As for why MGM might want to acquire Entrain, the long-running consensus, fostered by comments from the casino operator, is that the prospective suitor wants full control of BetMGM. BetMGM is the second-largest online sportsbook company and is nearing profitability, underscoring MGM’s desire to gain full control of the internet gaming entity.

However, as MGM’s 2022 takeover of Sweden’s LeoVegas AB indicates, the Cosmopolitan operator is willing to make acquisitions in Europe as an avenue for expanding its iGaming footprint. That could be a sign that if it successfully acquired Entain, MGM could retain a significant part or all of Entain’s European operations.

MGM Could Pay Steep Price for Entain

The multibillion-dollar question is, assuming MGM floats another takeover bid for Entain, how much the suitor will offer up? Entain’s current market capitalization is $10.50 billion, and a hefty premium to that figure is likely required. But that’s not all.

In 2021, DraftKings (NASDAQ: DKNG) engaged Entain in takeover talks, ultimately pitching a $22.4 billion cash and stock proposal. Those talks were ultimately scrapped.

Still, there’s some sense among industry observers that the offer was a “false flag” scenario orchestrated by DraftKings to run up the price of Entain and ward off other suitors. One way of looking at that is Entain might not be willing to accept any offer below what DraftKings proposed.

Another possibility is that MGM moves to buy Entain out of BetMGM, which wouldn’t be cheap. But it would be more cost-effective than an outright takeover.