The future of Entain has been brought under the microscope as Barry Diller and People Incorporated confirmed a lucrative takeover bid for MGM Resorts International.
Diller, whose company currently owns a 26.1% stake in BetMGM, described the operator as a ‘rare kind of business’, which he believes the ‘market materially undervalues’.
In confirming the takeover bid, he underpinned his appetite for ‘assets that AI cannot easily replicate or disintermediate’ and the exceptional digital growth opportunities presented by MGM.
This would encompass the full spectrum iGaming avenues in the portfolio, including LeoVegas and the myriad of game studios that are encompassed in the platform.
It’s a move that adds further questions to the future over the swirling rumours around Entain and a potential buyout of the firm from MGM, with Diller seemingly intent on focusing on taking the firm private to achieve its maximum market potential and elevate the digital growth opportunities.
Diller’s lucrative move to acquire MGM and the subsequent management shift at the top of the firm could accelerate any market moves for Entain. The UK business is a partner of MGM Resorts in the BetMGM joint venture, and Diller could potentially look to buyout Entain’s stake in the US sportsbook.
Entain is only a JV partner in the US BetMGM brand. Outside of the US, it is owned and operated entirely by MGM Resorts via the LeoVegas platform, in markets like the UK, Brazil, Netherlands and Nordics. Diller may want to get the entire brand, both US and non-US, under MGM control under his leadership.
Diller’s assertive approach to ensuring that he secures MGM assets is one that could set the tone for any future buyout of Entain’s stake in MGM.
There is also a far less likely path but one not completely implausible, especially in the unpredictable and challenging UK landscape, that sees MGM pursue an acquisition of Entain. Previously, MGM International had fallen short in a 2021 acquisition bid for Entain.
A new taxation climate in the UK has elevated the desire for M&A across the sector. Speaking to iGaming Expert, Ivor Jones, Equity Analyst at Peel Hunt, previously emphasised: “While it might make more strategic sense for MGM Resorts to simply acquire Entain’s 50% stake in BetMGM, Entain shareholders would probably prefer not to be left with the ex-US business to deal with.”
However, he implied that opportunity could knock for the operator, as the share price trajectory of the two companies could present an opening too fruitful to miss out on.
He continued: “Since the start of January 2021, MGM Resorts’ share price is up 21% and Entain’s is down more than 50%, which would appear to make a deal easier for MGM to execute.”
That gap has only been exacerbated since Jones spoke to iGaming Expert. MGM shares are now trading at $50.69 – boosted by 16% since this revelation yesterday – and now up by around 60% from its $31.50 stock value in January 2021.
Entain would have to weigh up a future bid tabled from MGM meticulously, and whilst it would be lucrative and likely at a premium, it would leave Entain’s core assets competing in a challenging market and eliminate one of its most profitable arms.
Exposure in the high-taxation UK market would be significantly elevated as a result of any deal. It could also potentially risk the company’s already-vulnerable position on the LSE’s prestigious FTSE 100 – of which it has been a member of since June 2020.
Furthermore, the move comes alongside other consolidations within the sector with Fertitta Entertainment’s landmark pursuit of Caesars is nearing completion after the two companies entered into a ‘definitive agreement’ for a transaction valued at an estimated $17.6bn.
In a letter to the MGM Board of Directors setting forth the terms of the proposal, Diller stated: “People Incorporated will be a good steward for MGM’s assets, given our large stake in the business today and our deep familiarity with the business. MGM shareholders will receive attractive value for their shares, fully de-risking their investment at a compelling return.
“Our proposal is subject to customary conditions, including the negotiation and execution of a mutually satisfactory binding agreement. Given our substantial knowledge of MGM, we expect that we can complete our confirmatory due diligence quickly, in parallel with negotiation of the definitive transaction agreements and finalizing required financing, and reach a prompt signing.
“We can deliver a highly certain transaction. The transaction would not be subject to any financing condition, and we are confident in our ability to fund the purchase price while maintaining prudent leverage, based on existing cash on hand at People Incorporated and MGM and preliminary conversations with other potential equity investors and financing sources.
“The transaction would be subject to limited competition approvals and applicable gaming regulatory approvals, and we would work closely with MGM in obtaining those approvals.
“We expect that People Incorporated would own just over a majority of the post-closing equity in MGM, and would have control over the business, with minority ownership by other investors (who may include some current MGM shareholders). We expect MGM’s current management team would continue to lead the business and would seek to discuss suitable terms with the relevant individuals at the appropriate point in the process.”
