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MGM Resorts Walks Away From Takeover Bid For Entain

MGM Resorts pulled out of the $11 billion deal to buy Entain after refusing to make a revised bid for the British sports betting and gaming company.

The move comes after Entain had rejected MGM’s offer made earlier this month, stating that it was undervaluing the company “significantly”. Entain owns gambling and sports betting sites including Bwin, Coral, and Eurobet.

MGM (MGM) shares rose 2.5% to $30.53 on Jan. 19. The company, however, stated that it was still committed to BetMGM – its online sports betting and gaming joint venture with Entain.

MGM Resorts CEO Bill Hornbuckle, commented, “We believe that BetMGM has established itself as a top three leader in its markets and we remain committed to working with Entain to ensure its strong momentum continues as it expects to be operational in 20 states by the end of 2021.” (See MGM stock analysis on TipRanks)

The casino group said during its 3Q earnings call that it is looking at BetMGM as a long-term venture and intends to position it as a leader in online sports betting and gaming in the US. At the end of September last year, BetMGM had a collective market share of 18% in the US.

During the 3Q earnings call, the company announced that it expected to generate FY20 net revenue of between $150 to $160 million from the joint venture.

Following the announcement, Macquarie analyst Chad Beynon reiterated a Buy rating on the stock. Beynon said that while the deal made strategic sense for the company, he believed that MGM had maximum financial flexibility of only 25% to negotiate a price for Entain that resulted in MGM walking away from the bid. According to Beynon, this indicates that MGM “remains disciplined around its balance sheet”.

Overall, the analyst consensus on the stock is a Hold with one analyst recommending a Buy, 8 analysts suggesting a Hold, and 2 analysts recommending a Sell. The average price target of $24.67 implies 19.2% downside potential to current levels.

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