MGM Resorts International’
s $11 billion takeover offer that would create a new online gambling powerhouse, saying that it “significantly undervalues” the company and its prospects.
Shares in the British sports betting group increased 29% in London trading on Monday, with MGM stock falling 4% after the open in New York.
The back story. MGM’s offer for Entain comes amid a flurry of activity to capitalize on the rapidly-growing and highly-lucrative U.S. market for sports betting. Legalized by a Supreme Court ruling in 2018, the practice is now operational in 18 states, with more expected to follow this year.
Entain is a FTSE 100 constituent that was until recently known as GVC Holdings. In 2018 the company bought Ladbrokes, a storied bookmaking giant with roots tracing back to horse racing in 1886. Entain also owns online gambling outfits Bwin and Partypoker.
MGM—known for Las Vegas hotels and casinos like the Bellagio, Mandalay Bay, and MGM Grand—is already partners with Entain in a joint venture. It is called Roar Digital and owns online gambling hub BetMGM, which was launched in 2018 with a $200 million investment, increased to $450 million in summer 2020.
Also read:Caesars Agrees $3.7 Billion Deal to Buy William Hill. It’s A Good Bet for Investors.
What’s new. Entain released a statement on Monday confirming that it had received, and rejected, a £8.09 billion ($11.03 billion) takeover offer from MGM. The proposal, which followed an initial all-cash $10 billion proposal, was first reported by The Wall Street Journal on Sunday night.
The offer in stock, which Entain said MGM had indicated could include a “limited partial cash alternative” for shareholders, represented a 22% premium to Entain’s share price at the close on Dec. 31. It would have given Entain shareholders 41.5% of the combined company.
Offers for Entain are governed by the City of London’s takeover code, which gives MGM until Feb. 1 to announce its intention on whether or not to make a formal bid for Entain.
“Entain has informed MGMRI that it believes that the proposal significantly undervalues the Company and its prospects,” the British group said in a statement.
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Looking ahead. A merger between MGM and Entain would make the combined company a powerful opponent to Caesars as well as newer digital rivals like
MGM’s bid for Entain follows a similar pattern to
’ proposed acquisition of
announced in September, which is awaiting regulatory approvals. The two Las Vegas groups both sought partnerships with experienced British bookies in the race to control the expanding U.S. sports gambling market, and then looked to take them over.
But Entain says $11 billion isn’t enough. It may be right, but MGM could hold their lucrative Roar Digital partnership hostage in a takeover battle—a strategy used by Caesars in its William Hill purchase.
And if the acquisition is successful, the future of Entain’s European businesses could be up in the air if MGM chooses to focus on the U.S. market. That would follow suit with Caesars, which intends to sell William Hill’s non-U.S. operations.