MGM Could Revisit Entain Takeover or Move to Buy BetMGM

Posted on: November 27, 2022, 08:25h. 

Last updated on: November 28, 2022, 04:35h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

The rumor mill regarding MGM Resorts International (NYSE:MGM) possibly revisiting a takeover bid for Entain Plc (OTC:GMVHY) continues spinning. There is renewed speculation that the casino behemoth could move to acquire all of the Ladbrokes owner, or attempt to buy the 50% of BetMGM it doesn’t own.

MGM Entain
MGM Grand on the Las Vegas Strip, seen above. The operator could make another bid for Entain. (Image: YouTube)

Entain and MGM each own half of BetMGM, and the latter has long acknowledged it’d like to control all of the property, which is the largest internet casino operator in the US. It’s also the second-largest online sportsbook company and is nearing profitability, underscoring MGM’s desire to gain full control of the internet gaming entity.

Citing an unidentified source close to MGM, the Offshore Gaming Association (OSGA) notes the casino operator almost immediately regretted the 50/50 structure of BetMGM — something MGM hasn’t been shy about acknowledging.

So, according to my source, MGM now is prepared to step up to the plate and ‘do whatever it takes’ to acquire Entain or, at the very least, buy out the North American operations of Entain. It won’t come cheaply, however, since in a 2021 shareholder’s meeting Entain said that BetMGM has generated five times the revenue it was expecting when it made the deal,” notes the OSGA.

In January 2021, MGM attempted to acquire Entain outright for north of $11 billion. But that offer was rejected as inadequate. The problem MGM or any other suitor for Entain faces is that in late 2021, DraftKings (NASDAQ:DKNG) offered more than $22 billion for the Coral owner. But those talks collapsed.

Other Issues with Buying Entain Outright

In addition to likely needing to offer more than double what it proposed in January 2021, MGM faces other considerations if it wants to make another offer for Entain.

First, accessing that much financing at favorable rates in the current macroeconomic environment is tricky. Second, Entain has been on an acquisition binge of its own, adding heft that could insolate it from purchase. Finally, the British gaming company is making clear it is more buyer than a seller, indicating it might take an excessively high offer to get the company to the bargaining table.

Additionally, there’s long been questions about what MGM would do with Entain’s Australian and European assets if it were to execute a takeover of the target. The casino giant’s recent purchase of LeoVegas indicates it’s willing to expand in Europe, perhaps opening the door to increasing its footprint on that continent.

“While it’s not certain what MGM wants with the non-North American portion of the company, there are many at MGM who believe that online gambling will grow exponentially in Europe, Asia, Australia and South America in the near future, and in those countries, the brand name Ladbrokes, Bwin, and SportingBet are more recognized than BetMGM, plus staff in those countries will have more local knowledge of how to attract new bettors,” added the OSGA.

Outright Entain Takeover Could Make Sense

While it’d be more cost-effective to acquire the 50% of BetMGM it doesn’t own, MGM would certainly pay up for that privilege, particularly when considering the unit’s increasingly attractive economics.

RoundHill Investments cofounder Will Hershey noted in the firm’s weekly email update that there are two reasons why the most likely outcome is MGM bidding anew for the entirety of Entain.

“(1) MGM has signaled its interest in online gaming outside of the US  via its purchase of Leovegas earlier this year; and (2) investor preferences have shifted towards near-term profitability versus long-term top-line growth, making Entain’s full suite of assets, including its profit-making European and UK operations a more palatable transaction for MGM to pursue,” according to Hershey.