MGM Resorts International (NYSE:MGM) has confirmed it made an $11.06 billion takeover bid for Entain Plc (OTC:GMVHY), its partner on the BetMGM venture, and that the British company turned back the proposal, saying it undervalues the company.
On Sunday, news emerged that the Bellagio operator was mulling another run at the company formerly known as GVC Holdings Plc and that the casino giant floated a $10 billion offer last year that was ultimately rejected. In rebuffing the new, $11.06 billion pitch, Entain asked MGM to clarify its strategic rationale, and the gaming company is obliging.
A combination with Entain would deliver full control of the BetMGM business to leverage the rapidly growing U.S. iGaming and sports betting opportunity (and) position the Company as a global gaming company across online and retail with a leading end-to-end technology stack,” according to a statement issued by MGM.
As BetMGM is currently structured, the two partners split the economic benefits. But as highlighted by Caesars Entertainment’s (NASDAQ:CZR) $3.69 billion takeover of William Hill (OTC:WIMHY), casino operators are growing wise to the advantages of having full control of their iGaming and sports wagering businesses.
With the online casinos and sports wagering industries taking off in the US, it makes sense for MGM to want to keep those economic benefits in-house.
Acquiring Entain would help the Mirage operator reduce dependence on land-based casinos as revenue drivers while diversifying its earnings stream 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.
“We believe MGM’s pursuit of Entain is a smart, strategic effort that would allow BetMGM to maximize return on investment (ROI) on customer acquisition across multiple channels,” said Union Gaming analyst John DeCree in a note to clients. “It would also give BetMGM direct access to MGM’s fortress balance sheet that offers more efficient capital for growth.”
MGM has $5.9 billion in liquidity. good for one of the industry’s strongest war chests.
It remains to be seen if MGM reconfigures or ups its bid for Entain. It currently consists of 0.6 of one MGM share for each share of the target. That means the target’s investors would own 41.5 percent of the combined company.
In the statement, MGM notes some cash could be offered to Entain and that IAC/InterActiveCorp (NASDAQ:IAC), its biggest investor, “has indicated it would potentially fund a portion of the partial cash alternative through a further investment in MGM.”
For investors, DeCree sees compelling potential in the combination of online operations and brick-and-mortar casinos.
“We believe the omnichannel integration across digital and land-based gaming is a significant opportunity that is still widely overlooked by investors,” said the analyst.