MGM’s largest shareholder, IAC, has offered to invest another $1 billion in the company to help it acquire Entain.
BetMGM co-parent Entain already rejected two takeover offers from MGM. The last one, worth around $11 billion, valued Entain at 1,383 pence per share. That equaled a 22% premium to the share price at the end of 2020
However, digital media giant IAC said it will put up more capital to help improve MGM’s bid. Specifically, IAC offered to help fund the partial cash alternative part of MGM’s offer (though the majority would be paid in stock.)
IAC said it could offer up to $1 billion as reflection of its confidence in MGM and the deal. IAC owns around 12% of MGM, having invested an initial $1 billion back in August.
Why IAC supports the acquisition
In a statement, IAC gave four key reasons it supported the deal:
- Positions the combined company as a pure play omni-channel leader in gaming and entertainment
- Aligns incentives around BetMGM and its future growth
- Enables knowledge sharing from different gaming geographies around the world
- Improves balance sheet and free cash flow to allow the combined business to aggressively pursue growth objectives such as US online market penetration, future M&A and returning capital to shareholders.
London-listed Entain this week upgraded its FY20 EBITDA guidance to more than $1.1 billion. That’s a lot of cash ready to be put to work in the US.
Entain shareholders could also benefit from a better multiple simply by moving its revenues to the US public markets.
What’s the risk for MGM?
The company is currently trading at 1,463p, suggesting investors are anticipating another offer from MGM.
There is an added pressure on the negotiations however.