The owner of Ladbrokes and Coral, which recently changed its name from GVC Holdings, said MGM proposed offering 0.6 of its shares for each Entain share, which based on last closing prices would value the FTSE 100-listed bookmaker at 1,383p per share.
Despite this being a premium of 22% to its share price, with Entain shareholders potentially owning approximately 41.5% of the enlarged MGM group, the board of the UK company said it has told the Las Vegas-based company that “it believes that the proposal significantly undervalues the company and its prospects”.
MGM, which has indicated it would offer a limited partial cash alternative to Entain shareholders, has also been asked to provide additional information about its strategic rationale for a combination of the two companies.
The move comes just a few months after Entain’s UK rival William Hill agreed to be taken over by its Las Vegas-based partner Caesars Entertainment Inc (NASDAQ:CZR).
Entain shares shot up 25% to 1,417.5p in early trade on Monday.
Broker Shore Capital noted that the proposed offer price was around eight to nine times underlying profits (EBITDA) for the business and a further circa-GBP3.5bn valuation for Entain’s 50% stake in BetMGM.
“We would see such a multiple as significantly undervaluing the prospects for the group, both from its core operations and most notably the US opportunity, especially when set against peers,” the Shore analysts said.
“We also, like Entain, struggle to understand the strategic rationale of a full tie-up with a predominantly land-based operation in MGM at this stage, highlighting the potential for a partial spin-off its US sports betting and iGaming assets in the US to help unlock the value in the opportunity and providing the additional firepower to fund expansion in this highly attractive market.”
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