Ladbrokes owner says MGM’s $11 billion takeover bet undervalues company

A closed Ladbrokes is seen in Manchester, following the outbreak of the coronavirus disease (COVID-19), Manchester, Britain

Ladbrokes owner Entain said on Monday an $11 billion takeover approach from U.S. casino operator MGM Resorts significantly undervalued its business, as companies move to capitalise on an expected boom in U.S. sports betting.

The United States is widely viewed as the next big growth market following a 2018 Supreme Court ruling that lifted a ban on sports betting. U.S. companies have sought partnerships to tap European expertise, including Caesars Entertainment’s 2.9 billion pound deal for Britain’s William Hill in September.

Online betting has also enjoyed a further boost as COVID-19 restrictions encouraged locked-down customers to play more from home when casinos and betting shops were off limits.

A deal would make a global gaming company with presence in both online and retail channels and end-to-end technology stack, MGM said, adding it aimed to engage with Entain.

MGM and Britain’s Entain, formerly known as GVC, have had a joint venture since 2018, when they set up an online betting platform in the United States.

MGM’s proposed offer of 1,383 pence per Entain share implies a deal value of 8.09 billion pounds ($11.08 billion), according to Reuters calculations, representing a 22% premium to Entain’s last close.

Entain shares jumped as much as 28% to an all-time high of 1,455 pence, leading gainers on the UK blue-chip index.

A deal would raise questions over the future of Entain’s UK high street betting shops after Caesars said it could sell off William Hill’s non-U.S. operations.

However, an Entain spokesman told Reuters there was no detail on that yet.

“Entain is a far more global and more integrated operation – operating online gaming sites around the world as well as a high street estate. That makes folding the non-US operations into MGM or spinning them off separately a far greater challenge,” Hargreaves Lansdown analyst Nicholas Hyett said.

DraftKings, whose backers include basketball great Michael Jordan, and Flutter Entertainment’s FanDuel are among the other businesses fighting for supremacy in the growing U.S. gambling market.

Entain said it received multiple proposals from MGM, with the latest one being MGM’s offer of 0.6 of its shares for each Entain share. Under the proposal, Entain shareholders will own about 41.5% of the enlarged MGM.

MGM’s proposal is backed by billionaire mogul Barry Diller’s IAC group, according to the Wall Street Journal, which first reported the proposal on Sunday. It follows an earlier all-cash proposal worth about $10 billion that was also rejected, it said.

Davy Research analysts also said the proposal undervalued Entain’s operations, including its prospects in the United States, adding that MGM’s flexibility and ability to improve its offer will be key.

Entain has itself expanded rapidly through a series of acquisitions and owns the bwin, Coral and Eurobet brands. It has asked MGM for more information on the strategic rationale for a combination.

“It would be no surprise if the predator were to put a bigger wad down on the table,” AJ Bell investment director Russ Mould said.

Las Vegas-based MGM has indicated that a limited partial cash alternative would also be made available to Entain shareholders, Entain said.

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