ii view: Entain outlines bid approach from MGM Resorts

The Ladbrokes Coral owner and former GVC Holdings confirms a big money offer from the US. 

Possible takeover offer from MGM Resorts International (MGMRI)

Proposed offer terms of 0.6 MGMRI shares for each Entain share

ii round-up:

Online and high street bookie Entain (LSE:ENT) today outlined details of a possible takeover offer from its current US partner MGM Resorts International (NYSE:MGM). 

Entain, which only recently changed its name from GVC Holdings, confirmed possible takeover terms of 0.6 MGMRI shares for each Entain share. The offer and based on closing prices as of 31 December 2020 would value each Entain share at 1,383p. A premium of 22% from their closing price of 1,133.5p.

Entain believes the proposal significantly undervalues the company and its prospects. Entain shares jumped by 29% in UK trading to 1,459p each. 

Entain, owner of the Ladbrokes Coral brand, already works with MGMRI in the USA under the BetMGM brand. As of October, BetMGM was operating in eight US states with an estimated market share of around 17%.

US casino operator Caesars Entertainment (NASDAQ:CZR) previously agreed to buy William Hill (LSE:WMH) for $3.7 billion (£2.9 billion). The potential MGM offer values Entain at around $11 billion, or £8.1 billion. 

Under the terms of the proposal, Entain shareholders would own approximately 41.5% of the enlarged MGMRI. A limited partial cash alternative would also be made available to Entain shareholders. 

In line with UK takeover rules, MGMRI has until 5pm on 1 February to either announce a firm takeover intention or walk away. 

Shares of fellow gaming companies 888 Holdings (LSE:888), Flutter Entertainment (LSE:FLTR) and Gamesys (LSE:GYS) all rose by more than 2% in early UK trading. 

ii view:

The previous acquisition of Ladbrokes Coral by Entain created a company with gaming licenses in more than 20 countries and across five continents. It offers both sports betting and gaming both online and via its High Street retail outlets. Its sporting brands include bwin, Coral, Crystalbet, Eurobet, Ladbrokes, Neds and Sportingbet. Its gaming brands include CasinoClub, Foxy Bingo, Gala, Gioco Digitale, partypoker and PartyCasino. 

Now Entain has outlined a possible takeover offer from its existing US joint venture partner MGM Resorts. Entain’s previous move to target the US market via a joint venture had already helped excite investors. Entain shares rose by 28% over the course of 2020, further aided by a bid for rival William Hill. 

For investors, the tentative proposal is not yet a declared takeover bid. Prior cautious management outlook comments regarding the pandemic also need to be remembered, as do tightening gaming regulations such as those being introduced in Germany, its second-biggest online gaming market. But 19 consecutive quarters of double-digit online growth is hard to ignore, as is the prospect of it coming together with a major US gaming concern. Existing shareholders will assess their own circumstances and objectives in determining what they do next. For the record, Entain management advises investors take no action.  

Positives: 

• Potential takeover offer
• Diversification of business types and geographical location

Negatives:

• Increased regulation
• Industry target for increased government taxes globally

The average rating of stock market analysts:

Strong buy