- Entain owns half of BetMGM
- Some investors have pressed the operator to create value via transactions
- Analyst says M&A optionality increasing
The US-listed shares of Entain Plc (OTC: GMVHY) are up nearly 38% year-to-date, quietly good for one of the best showings among sports betting equities, and more upside could be had if investors price in the possibility of the gaming company engaging in value-generating transactions.
In a recent report to clients, Jefferies analyst James Wheatcroft said the Coral owner’s mergers and acquisitions (MA&) optionality has increased, but that’s not reflected in the share price. Renewed earnings steadiness and a robust technology stack could pave the way for Entain to evaluate deals.
Entain has built a track record of consistent delivery across recent quarters – we expect investor attention will now re-focus on M&A,” observes Wheatcroft.
He rates the stock a “buy”, adding his sum of the parts (SOTP) analysis implies approximately 55% upside from where the stock recently traded and that does not account for the possibility of another company potentially offering to acquire Entain as a whole, which would require a premium to the prospective target’s current share price.
Entain Could Examine Options for BetMGM
Entain and MGM Resorts International (NYSE: MGM) are the 50/50 joint owners of the resurgent BetMGM business, which has long been subject of consolidation speculation.
Put simply, it’s widely known MGM would like to own all of BetMGM and that departing the joint venture would generate significant capital for Entain. Previous leadership regimes at the Ladbrokes owner overtly said joint ventures don’t last forever and with the Entrain ship steadying, management could take a look at options for its BetMGM stake.
“The heavy presence of activist investors on the Entain share register implies an appetite for value realization,” adds Wheatcroft. “We think investors will therefore increasingly look to a SOTP valuation, with particular focus on BetMGM. A potential stand-alone option derived from a cloned Entain tech stack negates the need to acquire the whole of Entain. The wider range of strategic options for BetMGM value realisation, including a US listing and M&A, should generate valuation tension.”
Eminence Capital founder Ricky Sandler has a seat on the board and Keith Meister’s Corvex Management has a stake in the gaming company. Meister is a director at MGM and his hedge fund has an equity position in that operator.
Other Options for Entain
A value-creating deal involving BetMGM is what creates attention and would likely command the largest amount of capital in a divestment or US listing for Entain, but the sportsbook operator has other levers it could pull to stoke shareholder value.
Recent media reports out of Australia, a county in which Entain has faced regulatory headwinds, suggest Betr could be evaluating bid for Entain Australia.
“A continued tough market backdrop, isolated tech platform and recent management departures make Australia a possible disposal candidate, in our view. Our SOTP highlights a £660 million ($890.1 million) value for Entain Australia,” concludes Wheatcroft.
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