Breaking News: MGM Resorts Drops Offer for Entain After Initial $11B Offer

• Many surprised by the quick breakdown of talks between both sides & deal collapsing
• Entain’s CEO resigning during negotiations & financial valuation disagreement factors
• MGM Resorts & Entain will continue to grow their current partnership through BetMGM

While the gaming world was anticipating important secondary news pertaining to MGM Resorts’ efforts to acquire international gaming conglomerate Entain, has abruptly ended with the company dropping their proposal.

MGM Resorts International (NYSE: MGM) announced the end of its attempt to acquire UK sports-betting company Entain plc (LSE: ENT). MGM says it will not make another higher offer, though it will continue to collaborate with Entain on running its joint venture BetMGM sports-betting platform.

In a statement on Tuesday, the US casino company said it would not pursue any further action for Ladbrokes owner Entain, following “careful consideration” and “limited recent engagement”.

In the first offer, MGM Resorts’ acquisition would have paid Entain $11.1 billion in an all-stock transaction with a 0.6 times exchange ratio. Bloomberg reported that Entain rejected the offer on January 4 on the grounds that the MGM proposal was undervalued. Anonymous sources indicate this is the second bid Entain spurned, with MGM Resorts offering an unspecified, but smaller, the all-cash amount in late 2020.

What Might Have Happened

People close to both sides said there was a wide divergence in valuation expectations between the two, as well as disagreement over the ownership split of the newly combined company. The unexpected departure of Entain’s chief executive Shay Segev during the talks also might have influenced the breakdown of the potential deal.

Also, a source close to Entain said that MGM’s offer was far short of what the company was financially expecting. Especially given investor appetite for gambling stocks, which had been fueled by rocketing valuations of American betting companies set to take advantage of the rapidly expanding US sports betting and online gaming market.

Market Fluctuation

Shares in Entain surged 25% after the MGM offer was initially disclosed, indicating that investors believed a higher offer was coming, either from MGM or another competitor. This follows an identical pattern that has taken place over the past twelve months within the gaming industry involving other acquisition deals. Following the announcement on Tuesday, Entain’s stock plunged 15% in London. MGM’s shares rose 2.6%

Still a Continuing Successful Relationship

In 2020, MGM’s rival Caesars Entertainment bought the UK bookmaker William Hill in a $3.7B deal, while the Dublin-based betting company Flutter, which owns the PaddyPower and SkyBet brands, spent $4.2B increasing its stake in the US daily fantasy sports company FanDuel.

As a priority within their business plan, MGM appointed new CEO Bill Hornbuckle to lead new efforts and online gaming opportunities. The companies have since been partners in a $450M 50/50% sports wagering venture in the US beginning in 2018, with each company bound to the deal through exclusivity clauses.

While MGM appears unwilling to offer Entain as much as the British company believes it could be worth, Hornbuckle remains upbeat about the two companies’ partnership. He commented:

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.

In reviewing subsequent comments, it seems unlikely another round may happen to reinvigorate talks of another potential deal between MGM Resorts and Entain.

Barry Diller, whose holding company IAC is MGM’s largest shareholder, mentioned he was skeptical that a deal could be accomplished due to the difficulty of aligning valuations in an all-stock transaction.

A person close to the board said that MGM’s executives are not planning to rush into any offers of a new deal. It would have to wait as under the UK takeover code MGM cannot make another formal approach for another six months.