MGM may make another bid for Entain, says Citi analyst

Posted: July 8, 2022, 1:59 a.m.

Last update: July 8, 2022, 2:21 a.m.

MGM Resorts International (NYSE:MGM) may be preparing another takeover bid for partner BetMGM Entain Plc (OTC:GMVHY) after it failed in that lawsuit in January 2021.

MGM Entain
A Ladbrokes betting store in the UK. Operator Entain may receive another takeover bid from MGM. (Image: Reuters)

A combination of Entain’s falling share price and the strength of the US dollar against the pound could force the Bellagio operator to reconsider an offer for the owner of Ladbrokes, according to the Citi analyst Monica Pollard. MGM has made it clear that it wants majority or full control of BetMGM. As it stands, the casino giant and Entain are 50/50 partners in the iGaming and sports betting entity.

Like other gaming stocks, Entain is faltering this year. But MGM is still expected to offer a hefty bonus if it makes another offer. Citi’s Pollard believes that operator Cosmopolitan must offer a premium at least 50% above the current stock price of the owner of Coral, and that the suitor should finance the majority of the stock offer.

In January 2021, MGM offered $11.06 billion for Entain, or 0.6 of one of its shares, after Target rejected a $10 billion proposal. At the time, that was equivalent to a 22% premium. The British bookmaker eventually rejected the second offer, and MGM did not raise this offer.

Entain Still seductive to suitors

Last September, DraftKings Inc (NASDAQ:DKNG) shook up the gaming world, offering $20 billion in cash and stock for Entain. The suitor then launched a $22.4 billion cash and stock offer. But no deal was reached, and Entain CEO Jette Nygaard-Andersen later admitted that BetMGM had obstructed a marriage with DraftKings.

It’s a reminder of what many market watchers already know: while Entain is a potentially desirable target for a variety of bidders, MGM is the potential buyer that makes the most sense, due to the structure from BetMGM. As seen during the DraftKings talks, MGM’s consent is required if Entain plans to merge with a competing US entity.

There are other reasons why MGM might reconsider an offer on Entain. With the online casinos and sports betting industries booming in the United States, it makes sense that MGM would want to keep these economic advantages in-house – which is not happening today as it shares the profits with Entain.

Acquiring Entain would help the casino operator reduce its reliance on land-based casinos as revenue generators, while diversifying its revenue streams and product offerings. Additionally, MGM could combine its own highly recognizable brand with Entain labels, such as Ladbrokes, Coral and Partypoker, to create a global online gaming juggernaut.

Additionally, Entain’s large European footprint could complement MGM’s pending $607 million acquisition of Sweden’s LeoVegas AB.

Booming BetMGM

In the states where it operates, BetMGM is the leading internet casino provider and one of the top three online sports betting operators, which is why MGM wants full control of the unit.

“Customer engagement remains stronger than ever, and on a like-for-like basis, BetMGM continues to generate growth of over 30%. In Ontario, it’s still relatively early. But while very competitive , in June, BetMGM recorded over 80 million transactions during the month,” Entain’s chief financial officer, Rob Wood, said in a conference call on Thursday. “With BetMGM continuing to deliver, we remain on track with our ambition of over $1.3 billion in net gaming revenue this year and achieving positive EBITDA in 2023.”

With an eventual purchase of Entain, MGM would achieve the goal of moving BetMGM to new countries. This is because the owner of Ladbrokes is one of the most visible sports betting operators in the UK, across Europe and Australia.