A date has been etched in the diaries of Entain’s board for the past six months: July 19, when the American casino giant MGM will be able to return with an offer for the FTSE 100 gambling operator.
Entain, formerly GVC, will update investors this week on results for the second quarter. However, it is the prospect of a new tilt from MGM, owner of resorts such as Bellagio in Las Vegas, that has the market’s attention. Despite rejecting an offer from MGM six months ago, shareholders are still looking wistfully across the Atlantic.
In January, MGM walked away from its £8.1 billion bid, but hinted a month later that it was still keen — with chief executive Bill Hornbuckle teasing analysts: “Time will tell, but we do want to diversify our revenues.”
Back then, MGM’s all-stock bid valued Entain at £13.83 a share. The board rebuffed the offer, saying it “significantly undervalued the business”.
Shares in MGM have risen more than 42 per cent since it walked away. Entain shares are also up more than 44 per cent. Given that MGM offered Entain investors 0.6 of its own shares for each Entain share, a deal on the same terms would now value the target at just over £18 a share. Shareholders would want a premium to the closing price of £17.97 on Friday. One top investor said last week that Entain was “filling time” until MGM came back. A deal, they predicted, was imminent.
Entain has performed strongly in recent months, particularly in America, where it already has a joint venture with MGM called BetMGM. Last year, that unit’s net gaming revenue of $178 million was less than 20 per cent of rival Flutter’s FanDuel brand. However, between last September and March this year, BetMGM grew its net gaming revenue by 400 per cent.
Entain has also sought to improve its image problem. It dropped the tainted GVC brand and announced in November that it would be leaving unregulated markets. By the end of 2023, all Entain’s revenue will come from regulated markets.
There are still some skeletons to come out of the closet: shareholders must hold their noses over an HM Revenue & Customs investigation into its former online gambling operation in Turkey. Thankfully, its previous chief executive, Kenny Alexander, left before appearing in court earlier this year, having gone for a joy ride in a takeaway driver’s car after a boozy night out.
A challenge for the board is tempering expectations — some shareholders are said to be hoping for a price of more than £25 from a suitor. Jefferies has a £23.35 target on the stock, Barclays £20.
Place your bets now. Buy.
