July 19 is a potentially date important in the relationship between MGM Resorts International (NYSE:MGM) and Entain Plc (OTC:GMVHY) because that’s the first day the US casino behemoth can make another offer for its partner on the BetMGM venture.
In January, the Las Vegas-based gaming operator offered $11.06 billion for the British bookmaker, which the target ultimately rebuffed, calling it inadequate. After that all-equity bid was rejected, MGM said on Jan. 19 it wouldn’t raise the proposal, ending two weeks of speculation to that effect. Under UK law, the Bellagio operator was forbidden from making a fresh takeover pitch for six months. That freeze period expires on Monday.
While it’s not immediately clear if MGM is readying another run at Entain, it’s easy to understand why the former made an overture in the first place. The North American iGaming and online sports betting markets are on torrid growth paces and BetMGM is one of the fastest-growing operators in the space.
The business is growing at a phenomenal pace — in Q1 2021 revenues stood at $163m, representing growth of 430% when compared with Q1 2020 and 90 percent of revenues achieved in 2020 as a whole,” according to Entain. “This dramatic increase demonstrates the benefits of solid foundations, effective state rollout and the strength of our broad customer engagement approach through: omni-channel;, affiliates;, Mlife loyalty programme; and other channels combined with our and powerful and highly, effective marketing.”
Due to BetMGM’s structure, MGM only realizes half the economic benefits of the operation, something it could change with a takeover of Entain.
MGM Will Have to Up Bid
Earlier this year, there was talk MGM could boost its bid for Entain with one of the Mirage operator’s major investors saying it would provide financing to that effect.
Obviously, such a revised offer didn’t materialize. Today, it’s clear MGM would certainly have to come to the bargaining table equipped with a proposal in excess of $11.06 billion for the simple reason that Entain’s share price appreciated considerably over the past six months. MGM’s prior offer for the Ladbrokes owner was equivalent to $19.03 based on current exchange rates, but Entain shares closed at $25.05 last Friday.
MGM has total liquidity of $9.7 billion — good for one of the strongest war chests in the industry — so it could add a cash component to any revised Entain offer if it so chooses.
For MGM, Does Old Entain Love Die Hard?
Since MGM walked away from its courtship of Entain in January, rumors lingered regarding the Mandalay Bay operator returning with analysts speculating a revised bid could eventually come to fruition.
Should the two parties come to an agreement this time around, it could be interesting to see how the buyer deals with the Coral owner’s physical real estate and its exposure to mature sports wagering markets such as Australia and Europe.
Those aren’t regions in which MGM currently does business and the company has a well-known preference for an asset-light operating model.