Interactive Investor

ii view: Ladbrokes owner Entain considers bid approach

22nd September 2021 10:45

Keith Bowman from interactive investor

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Having previously rejected an MGM offer earlier this year, now DraftKings has expressed an interest. 

Proposed takeover offer from DraftKings

  • Offer of £28 per share (£6.30 in cash and the balance in DraftKing shares)

ii round-up:

Owner of betting brands including Ladbrokes, Coral and bwin, Entain (LSE:ENT), today outlined details of a takeover approach from US betting company DraftKings (NASDAQ:DKNG) worth over £16 billion. 

Having first tabled a rejected offer of £25 per share, DraftKings has now raised its offer to £28 per share. The new offer consists of £6.30 in cash and the balance made up of DraftKings shares. 

Entain shares rose by more than 10% in UK trading to touch £25 each, having risen by 18% the previous day as press speculation regarding the potential takeover first aired. Earlier in the year, US company Caesars Entertainment (NASDAQ:CZR) completed a £2.9 billion takeover of Entain rival William Hill. 

Entain management highlighted its strong belief in the future prospects of the company, underpinned by its leading market positions, world class management team and industry-leading technology.

At the start of 2021, Entain rejected an all-share $11 billion (£8 billion) offer from its US business partner MGM Resorts International (NYSE:MGM) on the grounds that it significantly undervalued the company. MGM Resorts remains Entain’s US joint venture partner. 

This latest proposed UK company takeover follows recent bids for both supermarket operator Morrison's (LSE:MRW) and engineer Meggitt (LSE:MGGT) from US concerns. Transport operator National Express (LSE:NEX) yesterday tabled an offer for UK rival Stagecoach (LSE:SGC)

At a recent investor event, Entain management flagged potential for its total addressable market to grow by more than three times to $160 billion.

Entain management is now considering the DraftKings offer and will make a further announcement when appropriate. Shareholders are urged to take no action at this time.  

ii view:

Sports-betting and gaming company Entain operates both online and on the High Street. Its brands include Ladbrokes, Sportingbet, Gala, BetMGM and PartyCasino. The FTSE 100 constituent is tax resident in the UK with licenses in a total of 27 regulated markets. It operates in the USA via a joint venture with MGM Resorts. 

For investors, tightening gaming regulations such as those introduced in Germany should not be forgotten. Problem gambling is an issue which critics of the industry are keen to promote and address. Entain’s current joint venture with MGM also asks questions as to how a potential deal with DraftKings would work.

That said, Entain has reported over 20 consecutive quarters of double-digit online revenue growth. First-half adjusted earnings (EBITDA) to the 30 June 2021 grew 12% to £401 million. Its US MGM joint venture business is the number two operator for sports betting and iGaming across the US with a 22% market share. For now, and with the share price having more than doubled year-to-date, Entain management's advice to sit tight and take no action looks sensible.  

Positives: 

  • Diversity of business type and geographical locations
  • Hopes to restart the dividend in March 2022

Negatives:

  • Increased regulation
  • Potential target for raised government taxes globally

The average rating of stock market analysts:

Strong buy

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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