UK Bookmaker Entain Rejects MGM Resorts £8 Billion Buyout Bid

Entain, the British sports betting and casino company behind such recognisable brands as Ladbrokes and Coral, recently received an amazing buyout bid from their US-based partner MGM Resorts International (MGMRI).

The initial proposal would see MGMRI take a controlling interesting in Entain. However, the deal would have had the upside for investors by allocating them a 41.5% stake in MGM.

 Please, Sir, Add Some More

The buyout proposal valued an astounding £8.09 billion, was rejected by the Board of Entain on the grounds that it undervalued the company, its holdings, and its potential for growth.

In a press release David Lloyd-Seed, Director of Investor Relations said:

“Under the terms of its most recent proposal, MGMRI would offer 0.6 MGMRI shares for each Entain share.  Under the terms of the proposal, Entain shareholders would own approximately 41.5% of the enlarged MGMRI. Entain has informed MGMRI that it believes that the proposal significantly undervalues the Company and its prospects.”

The press release went on to intimate that the Board was not convinced that such a merger was necessary the best long-term decision by requiring MGM Resorts to provide “information in respect of the strategic rationale for a combination of the two companies”.

Under Rule 2.6(a) of the City Code on Takeovers and Mergers MGMRI has until 5 pm on February 1st, 2021 to either confirm that they are willing to make a serious buyout offer or formally withdraw from the proceedings.

 Going All In On The US Market

One of the most likely reasons for this sudden and clearly unexpected buyout bid from MGMRI is the growth of the US betting market since its deregulation.

With American operators lacking the online experience of their UK betting counterpart, due to the UIGEA coming into force in 2006, most of the US online betting growth has come about through partnerships like the one between Entain and MGMRI.

Alun Bowden of gambling consultancy Eilers & Krejcik Gaming explains:

“The US market is moving so quickly that to spend one or two years building that up, at the absolute minimum, is just time nobody has to spend. Two years ago they were happy to do joint ventures and effectively lease the brand for a revenue share deal to European operators. Now they really want to have full ownership of their involvement in the market.”

This urgency for market share, combined with the recent acquisition of William Hill by Caesars Entertainment, is what must have driven the decision to bid on Entain.

To put matters into perspective since its deregulation the USA now has 19 states which have opened their digital borders to online sports betting. Despite the value inherent in the UK betting market, it is speculated that a single state such as California could be more valuable.

This puts an inordinate amount of pressure on US bookmakers to establish their brands, and maximise their future returns, now.

 Investors Strike While the Iron is Hot

In the wake of Entain rebuffing MGM Resorts the stock prices for the British sports betting and gambling company spiked dramatically.

Market analysts are banking on the increased competition in the US to drive MGM’s buyout bid well above their initial offer of £13.83. This speculation has seen the value of LON: ENT climb by more than 27% in less than 24 hours.

If the market remains bullish on the share MGM Resorts could find themselves in a situation where they need to pay even more for the shares than intended as investor appetite sees the shares continue to climb in value.