MGM and Entain played a game of M&A poker earlier this year that ultimately ended in deadlock.
After two rejected bids, MGM declined to make a third offer for its BetMGM co-parent Entain.
The last bid came in at 1,383 pence per share and valued its US sports betting partner at about $11 billion. That equalled a 22% premium to the share price at the end of 2020.
Entain wanted more
But Entain maintained the offer “significantly undervalued” it. Since those talks concluded in late January, Entain has been proven spectacularly right.
As of Monday, the business was trading at 1,631p a share. Add another 22% offer premium, and a new MGM bid might have to come in around 2,100p. That is closer to a $17 billion valuation.
So will the Las Vegas giant make another offer?
BetMGM growth is a key factor
Ironically, MGM might have helped drive up the price through to the success of the BetMGM brand. Multiple analysts upgraded their price target for Entain following the recent BetMGM investor day.
For instance, London-based Peel Hunt increased its PT to 2,000p.
“Increasing our valuation for BetMGM is the main driver of the increase in our sum-of the parts-based valuation,” Peel Hunt said.
“BetMGM grew to second in US market share in February from a distant fourth in October, with the boost from MGM venues fully reopening yet to come,” the analyst added.
What next for MGM and Entain M&A?
Due to UK competition law, MGM cannot make another offer for six months after the last one. That lockup expires in the second half of July.
Before the latest run-up in Entain’s share price, analysts thought the two would be back at the negotiating table.
“If I were to bet, I think these two companies will be together at some point in the future,” said investor Jason Ader in January. “It will be good for MGM.”
Road map from Caesars and William Hill?
Indeed, a US casino giant acquiring a European online operator is now a familiar transaction.
Caesars recently closed its $4 billion deal for William Hill, while Bally’s agreed to acquire UK operator Gamesys. On a smaller scale, Wynn acquired online betting firm BetBull to power its online product.
But will MGM still be a buyer at the higher price?
Expect speculation to return
Barclays analyst James Rowland Clark said he expected speculation about a tie-up to return. As a result, a “bid premium” should be attached to Entain shares, he said.
“JVs generally don’t last forever,” added Gavin Kelleher, an analyst at stockbroker Goodbody. “MGM has shown their hand that they want full control of the JV. US firms need to own their own technology. However, Entain management are doing a very good job as a standalone entity.”
Keystone Law gaming lawyer Richard Williams also said he expected a renewed bid from MGM given the momentum of the shared business.
“I don’t think MGM can ignore this opportunity and will return with a 2,000p plus per share bid in the not too distant future,” Williams said. “As listed gambling operators in the UK continue to get gobbled up by US operators, the price of the remaining listed gambling operators will only increase.”
It’s widely expected that , then, the two sides will be back at the M&A poker table come July. This time, the stakes and the potential pot look much, much bigger.