Failing to buy Entain puts MGM in a bind

Jon Pill
Posted on: January 26, 2021 07:00 PST

It should have been a match made in heaven. The UK-based gambling conglomerate Entain has access to huge, international networks of expertise and assets in the online gambling market. MGM is a big brand in the re-emerging and potentially enormous online U.S. market, but their specialism is brick and mortar.

Put them together, and the two companies can do what corporations do: synergize. U.S. money and British know-how is how we broke the sound barrier and how we built the internet.

That was the idea behind the MGM/Entain merger that fell through this week. MGM wanted Entain's controlling share interest and with it Entain's subsidiary brands like Ladbrokes and Coral.

However, after tendering an offer of £13.83 (about $18.90) per share, MGM got a "No" from Entain. It just wasn't a high enough offer.

Under UK law, MGM will not be able to make another takeover offer to Entain for 6 months. A second offer appears unlikely at the moment as MGM told the press that “after careful consideration and having reflected on the limited recent engagement between the respective companies regarding MGM’s rejected all-stock proposal [...they do] not intend to submit a revised proposal.”

This has the potential to cut the hamstrings on MGM's plans for expansion in the online field. Hobbling them going forward will be the $450 million deal with Entain that binds MGM's sports betting operations to Entain fifty-fifty. This means instead of having free reign to ride the market forces as they please, both companies must agree on any plans for expansion.

Globalism rising

Other U.S. companies have been taking advantage of Europe's talent pool to tackle the unique problems of online and overseas operations. Caesar's Entertainment, for example, took over William Hill in a $4 billion deal. The trend cuts both ways, with Ireland-based Flutter hoovering up shares in U.S. fantasy sports company FanDuel to access the U.S. market. In their takeover attempt, MGM would have been following the market.

MGM's co-operation with Entain is what made Entain an ideal target. But that co-operation seemed to break down at the negotiating table though with MGM claiming they had trouble pinning Entain execs down.

Some of the trouble may have been driven by Shay Segev leaving Entain. Segev was CEO when the deal started but left in the middle of negotiations.

Shares in Entain fell 12.5% at the news of the deal falling through this week. It seems unlikely that there will be any further bidders for the company as it currently stands.

The joint-venture with MGM, which is a major asset for Entain, is unlikely to be on the table to any other bidder. MGM has the right to buy out the entire thing should anyone else take Entain over. And they are unlikely to leave that much meat for the vultures.

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