- Early this month, MGM Resorts announced that they had made a rejected offer for British gaming firm Entain PLC, owners of Ladbrokes.
- MGM has now indicated that they will not continue pursuit of a purchase of Entain PLC and continue their working agreement with the company.
- The UK business media is indicating that a significant difference in valuation of Entain could have been the deal’s undoing.
MGM Resorts won’t be getting their own marquee sports betting brand–at least not for now. In an effort to better compete with companies like Flutter (owners of BetFair, PaddyPower and FanDuel) and Caesars Entertainment (which recently purchased UK bookmaking firm William Hill) the company had targeted Entain PLC. In early January, MGM had made an offer of 0.6 MGM share for each Entain share which represented a 22 percent premium over the then-current closing price. That offer was rejected and earlier today MGM Resorts announced that they would no longer pursue the purchase.
Entain is a big player in the international online and retail sports betting scene which includes ownership of UK bookmakers Ladbrokes and Coral. Making the situation even more awkward–MGM and Entain are joint partners in BetMGM to the tune of $450m. This is a 50/50 sports-betting joint venture that began in 2018, with each company bound to the deal through exclusivity clauses.
MGM Resorts issued this terse press release earlier today:
MGM Resorts International (“MGM” or the “Company”) announced today that, after careful consideration and having reflected on the limited recent engagement between the respective companies regarding MGM’s rejected all stock proposal at an exchange ratio of 0.6x, it does not intend to submit a revised proposal and it will not make a firm offer for Entain plc (“Entain”).
MGM is committed to being a premier global omni-channel gaming and entertainment company, and will maintain a disciplined framework while evaluating a range of compelling strategic opportunities.
“BetMGM, our U.S. sports betting and online gaming venture with Entain, remains a key priority for the Company as we continue to leverage our preeminent physical gaming, entertainment, and hospitality platform to expand digitally,” said Bill Hornbuckle, CEO of MGM Resorts International. “We believe that BetMGM has established itself as a top three leader in its markets and we remain committed to working with Entain to ensure its strong momentum continues as it expects to be operational in 20 states by the end of 2021.”
On January 4, Entain sent out a release confirming MGM’s interest and their rejection of an offer that they felt significantly undervalued the company:
The Board of Entain plc (“Entain” or the “Company”) notes the recent press speculation. 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.
Another issue complicating a prospective deal was the announcement just a week or so ago that CEO Shay Segev would leave to become co-CEO of sports streaming platform DAZN. Segev is considered an up and comer in the world gaming industry and the move pretty much confirms that DAZN will make a stronger push into sports betting to counter rival fuboTV. Making this all the more confusing–Segev went out of his way to deny that MGM’s interest had anything to do with the timing.
“I will be sad to leave the Company after five years but I have been offered a role which offers me a very different type of opportunity. Entain is in great shape after the successful launch of our new strategy. I also want to emphasise that the recent interest from MGM Resorts has had absolutely no bearing on my decision, and I fully support the Board’s decision to reject their proposal. Entain has a great team of leaders and an exciting future ahead through its growth and sustainability strategy, and I will do all I can to continue to support the Company.”
Richard Stuber, director of travel and leisure at London based investment bank Numis Securities, told the Financial Times that he doesn’t see any interest from counter bidders for Entain due to MGM’s ability to buy out the UK group’s share of the joint venture should another acquirer take control of the business. He did conclude that the relationship between Entain and MGM “is not as strong as I thought” based on the indication of ‘limited engagement’ noted in the press release from earlier today.
The FT story also quoted Barry Diller–his holding company IAC is MGM’s largest shareholder–who offered a few potentially prophetic quotes noting that there are “opportunities everywhere, whether they are self start-ups as we go into a [new] territory, or acquisitions.” He also warned that “joint ventures are awkward to operate and generally do not last”.
Ouch. Under UK financial regulations governing buyouts MGM can’t approach Entain with a new offer for six months.