MGM Begins New Year Shake-up with $11B Offer for Ladbrokes Owner Entain

• MGM’s offer for Entain only “semi-surprising” given the latest flurry of gaming acquisitions 
• The original offer of $11b rejected and will have to be reconsidered during the next step activity
• News of potential acquisition sent Entain stock price predictably soaring up 26%

2020 ended relatively quietly in the tumultuous online gaming industry but it did not take long for 2021, to begin with, a volcanic eruption.

According to informed sources, Entrain, the UK gambling group owning Ladbrokes and Coral, rejected an $11B takeover proposal from US casino operator MGM Resorts, saying that the offer “significantly undervalues” the company.

In a statement on Monday, Entain, who also owns sports wagering site Bwin plus Partypoker, added that it had requested more information from MGM “in respect of the strategic rationale for a combination of the two companies”.

“The board has also asked [MGM] to provide additional information in respect of the strategic rationale for a combination of the two companies,” Entain said. The UK company has received multiple proposals from MGM, its statement suggested. Asked for further information, a representative from MGM declined to comment.

As predicted when news of these headline deals is initially announced, shares in Entain increased more than 26% on Monday.  The news sent shares in Entain 26% above the price per share offered by MGM. A predictable sign that some investors expect another offer from the US company or possibly from another bidder.

MGM has been quite busy in the sports gaming market over the past three months while also being a major player in Las Vegas, operating casinos including the Bellagio and Mandalay Bay.

Timing of the Offer

The news of the offer from MGM was not completely unexpected due to the recent sweeping changes in the gaming world involving US states continuing movement to legislate sports wagering. Many companies are looking to reduce their exposure to increasingly stricter regulations in other countries. Also, being somewhat inexperienced in online gaming, US companies have been looking to partner with European allies to gain an advantage.

In July 2018, MGM and Entain signed a $200m deal creating a sports betting platform in the US. Their investment increased their shared 50%/50% partnership to $450m last year.

MGM and Entain are joint owners of BetMGM, a sports betting and online gaming company that operates in more than a dozen US states. Entain, which owns brands including Eurobet, Ladbrokes, and Sportingbet, operates both retail sportsbooks locations plus online sports wagering.

Commenting on the proposed acquisition, Nicholas Hyett, an equity analyst at Hargreaves Lansdown said:

I can understand why MGM wants to take control of Entain, given that the two companies are already working together on sports betting in the United States. But I caution that a higher price may prove too much for MGM shareholders to swallow.

Beginning in early 2020, COVID-19 and the current pandemic has only accelerated the acquisition trend within the sports wagering sector of the gaming industry, sparking a flurry of deal making and consolidation.

Caesars Entertainment (CZR) announced in September that it was buying UK bookmaker William Hill for £2.9 billion ($4 billion). Shares in sports betting giant DraftKings Sportsbook have also skyrocketed after an initial public offering in April.

Flutter Entertainment (PDYPF), which owns Paddy Power, Betfair, and Pokerstars, recently increased its stake in the US sports gaming platform FanDuel.

Potential Next Steps for MGM

MGM’s proposal is backed by billionaire Barry Diller’s IAC group and follows a recent all-cash proposal of approximately $10b that was also rejected according to sources. IAC, while investing $1b in MGM in 2020 to boost an online business is said to be willing to add another $1b to the offer to help enable the takeover.

Diller, who aided in building the Fox Television Network with Rupert Murdoch along with other broadcasting ventures, said that IAC’s experience could significantly contribute to the growth of MGM’s online gaming business.

MGM has until February 1 to make a firm offer under UK takeover law.