- MGM's approach values the FTSE 100 group at 22 times' 2019 earnings
- Entain's shares have surged past the 1,383p per share bid on hopes of a rival or improved offer
Entain (ENT), the gambling group formerly known as GVC Holdings, has rejected a 1,383p per share bid from MGM Resorts International (US:MGM), arguing that the offer “significantly undervalues” the company.
Under the terms of the $11.1bn (£8.1bn) deal, which is a 22 per cent premium to last week’s closing share price, Entain shareholders would be given 0.6 shares in MGM for each Entain share they own, though “a limited partial cash alternative would also be made available”. Market reports suggest MGM previously made an all-cash offer of $10bn that was also rejected.
The pushback should come as little surprise to shareholders. In November, recently-appointed chief executive Shay Segev told investors he believes he “can double or even triple the size” of the business within the next five years through a bullish tech-led strategy focused on new markets.
These include the US, where Entain’s expansion efforts hinge on online-focused sportsbook BetMGM, a joint venture formed with MGM Resorts in 2018 following an overhaul in the country’s gambling laws.
Entain’s strategic push has so far proved successful, even as its UK high street presence – centred on the Ladbrokes and Coral brands – has been badly hit by the pandemic. Shares in the FTSE 100 constituent were up 25 per cent in the year prior to the bid and surged to 1,430p following the news on hopes of a rival or improved offer.
We think investors should adopt a wait-and-see approach. Entain has both a strong growth story – evidenced by analysts’ expectations of a near-doubling in earnings to 112p per share by 2024 – and a place on the radars of US corporates likely to look beyond near-term pressures and toward long-term value and synergies. Hold.
Last IC View: Hold, 1,095p, 15 Dec 2020
