Entain Could Sell BetMGM Stake or Itself to MGM, Says Jefferies Analyst

Amid the recent departure of CEO Jette Nygaard-Andersen and increased action in the stock by activist investors, the time could be appropriate for Entain Plc (OTC: GMVHF) to consider dramatic action.

That’s the take of Jefferies analyst James Wheatcroft. In a new report to clients, he rated the downtrodden shares of the Ladbrokes parent “buy” up from “hold,” noting that a variety of options could be on the table for the gaming company.

We would expect other options to include the sale of Entain to MGM, the sale of the BetMGM stake, the sale of other assets, in addition to finding a suitable CEO … Several factors now imply an opportune moment for MGM to re-evaluate an approach to Entain,” wrote Wheatcroft.

Talk of MGM Resorts International (NYSE: MGM) bidding anew for its BetMGM partner arrived nearly three years after the Bellagio operator bid $11.06 billion in cash and stock for Entain. The British bookmaker said the offer wasn’t adequate. In the nearly three years since that offer was made, MGM hasn’t publicly floated another bid and Entain’s market capitalization has slumped to $7.89 billion.

Why Jefferies Analyst is Bullish on Entain

Wheatcroft acknowledged that the specter of transformative transactions — be it the divestment of Entain’s 50% BetMGM interest, or an outright sale of the entire company — could hinder the search for a new chief executive officer. He still sees short odds “for a highly credible CEO to land at Entain.”

Wheatcroft also highlighted Keith Meister’s Corvex Management recently announcing a 4.4% stake in Entain as a possible catalyst for dealmaking. Due to potential conflicts of interest, Meister isn’t a candidate for an Entain board seat.

Still, Wheatcroft’s line of thinking is valid, because Meister is a director at MGM and his hedge fund owns 2% of the casino giant’s shares outstanding. That means he’d likely come out ahead if MGM buys Entain outright or acquires full control of BetMGM.

Believe it When it Happens

Given the executive upheaval and increased interest in Entain by activist investors, now would appear to be a reasonable time for MGM to pounce. But speculation to this effect is now ancient by the standards of financial markets.

Still, as Wheatcroft pointed out, Entain shares are currently inexpensive, and that’s even when accounting for the recent slew of headlines indicating the company could be a takeover target.