(Bloomberg) -- Gambling company Entain Plc has dismissed an 8.1 billion-pound ($11.1 billion) takeover attempt from MGM Resorts International saying the bid undervalues the U.K. company that’s benefiting from a surge in online betting.Under the proposed terms, Entain investors would exchange stock for 0.6 of a share of MGM and would hold about 42% of the combined business, the London-listed company said in a statement Monday. That tops an earlier all-cash bid made late last year, people familiar with the matter had said.A merger would give MGM full control of its U.S. joint venture with Entain at a time when the industry is seeing dramatic growth and would “expand and diversify the company’s operations, product offerings and earnings,” the casino operator said in a separate statement. The U.S. sports betting market alone is expected to quintuple in size to $8.4 billion by 2024, according to the consulting firm Vixio Gambling Compliance.MGM may also offer a “limited partial cash alternative” to the British company’s shareholders, which will be partially funded by its largest shareholder, Barry Diller’s IAC/InterActiveCorp. U.K. takeover rules mean MGM has until the end of Feb. 1 to issue a formal bid, and MGM said there’s no certainty one will be made.The deal values Entain at 1,383 pence a share, a 22% premium as of Thursday’s closing prices.Entain’s shares jumped 25% to close 1,420 pence in London, the biggest intraday gain since 2009. MGM shares fell 4.7% to $30.05 at 12:42 p.m. in New York.Joint VentureMGM, the largest casino operator on the Las Vegas Strip, formed a joint venture in 2018 with Entain, the same year the U.S. legalized sports betting. Formerly known as GVC Holdings Plc, Entain is behind an array of online gambling sites and brands, including Ladbrokes Coral and Bwin, which have become increasingly attractive since.Growth in the industry has led to a slew of deals including Las Vegas-based casino giant Caesars Entertainment Inc.’s takeover of the U.K.’s William Hill Plc. Flutter Entertainment Plc, headquartered in Dublin, is upping its stake in U.S. bookmaker FanDuel and last year completed a deal for the Stars Group Inc.MGM’s joint venture could prove important if rival suitors emerge. In a change of control, the casino operator has the right to buy out the partnership or sell its stake, a person familiar with the structure said, asking not to be identified because they aren’t authorized to discuss it publicly.Caesars threatened to terminate a similar partnership with William Hill if another bidder prevailed in their merger discussions, a tactic analysts described as a “poison-pill.”A representative for MGM didn’t immediately respond to a request for comment on the holding.Entain said it has asked MGM for more details on the strategic rationale for the combination and has requested shareholders to take no action. Entain shares gained 28% last year before MGM’s offer was made public, giving it a market value of 6.6 billion pounds. MGM shares fell 5.3% in 2020.(Updates with change-of-control provisions in joint venture in ninth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Since 1992, federal law banned all but a few states, including Nevada, which is home to Las Vegas, from promoting gambling on sporting events.
(Bloomberg Opinion) -- Gambling has been one of the few areas of online activity where the U.S. doesn’t dominate. Now it’s catching up. The latest attempt comes in the form of an $11 billion bid from MGM Resorts International for the U.K. owner of the Ladbrokes and Coral betting shop chains, Entain Plc. The market wants an even bigger price. That shouldn’t be too hard to get, even if conjuring a rival offer would be complicated.MGM and Entain already have a partnership giving the U.S. company access to the London-listed group’s technology. For years, regulatory curbs in the U.S. enabled U.K. and Irish firms to steal a march in online betting. Liberalization led to cross-Atlantic alliances. Now MGM wants the simplicity of full control over Entain rather than the fudge of a joint venture. It’s not alone — Caesars Entertainment Inc. just agreed to buy its partner, William Hill Plc, for similar reasons. The near-term cost and revenue synergies from a deal are less clear.For MGM, there is a big benefit to this starting point. Any rival bidder would have to negotiate new JV terms or risk the loss of the partnership. That limits the number of firms that might be interested in gate-crashing. Buyout shop Apollo Global Management Inc. sniffed around William Hill but later withdrew from the auction.MGM has other advantages too. First, a strong share price and acquisition currency that’s doubled since July. And second, a deep-pocketed backer in the form of lead shareholder IAC/InterActiveCorp, backed by billionaire media mogul Barry Diller. Small wonder then that its offer is denominated in stock with a “limited partial” cash alternative.Entain has rejected this and previous approaches. The latest is worth around 8 billion pounds ($11 billion) for the equity at roughly 13.80 pounds per share based on MGM’s closing price. The 22% takeover premium over Entain’s Dec. 31 price isn’t as mean as it looks. It’s about one-third over the U.K. company’s three-month volume-weighted average price, and the stock was already boosted by some bid speculation.However, the market has pushed Entain’s stock above the proposal and appears to be hoping for an offer worth closer to 15 pounds a share. That would cost MGM nearly 11 billion pounds including assumed net debt, representing almost 13 times Entain’s forecast 2021 Ebitda. At this level, the starting return on invested capital would be a paltry 4% based on the target’s expected 571 million pounds of operating profit in 2021. MGM would have its work cut out to drive those returns higher and the synergies are at this stage uncertain. Still, Caesars shares have rallied on its agreement to pay a similar multiple for William Hill.A rival bid can’t be ruled out. But if MGM shareholders react the same way as Caesars’ did, the value of the share-based proposal will rise, also making it easier to add a sweetener to secure Entain’s agreement. The risk is the market frets that Entain shareholders would prefer cash. But in that scenario, MGM can at least call on Diller for support. MGM has a strong hand, but it hasn’t played the winning card yet.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.