MGM, the US casino group, has abandoned its attempt to buy the UK gambling company Entain, two weeks after an £8bn all-share takeover bid was rejected by the target’s board.
The collapse of negotiations leaves MGM with few options to expand its reach in the fast-growing US online gaming and sports-betting market as it remains locked in an exclusive joint venture with Entain.
MGM’s pursuit of Entain was aimed at strengthening that venture to allow the US company to compete more aggressively with rivals such as UK-based Flutter, which consolidated its hold over its US assets last year.
But people close to both companies said there was a wide divergence in valuation expectations between the two, as well as disagreement over the ownership split of the newly combined company. The unexpected departure of Entain’s chief executive Shay Segev during the talks had also hampered any deal.
“His departure threw everything up,” said a person close to the negotiations.
“After careful consideration and having reflected on the limited recent engagement between the respective companies regarding MGM’s rejected all stock proposal . . . [MGM] does not intend to submit a revised proposal,” the Las Vegas-based company said on Tuesday.
Shares in Entain, the owner of the UK bookmakers Ladbrokes and Coral, fell sharply on the news, shedding 12.5 per cent to give it a market value of about £7.3bn.
MGM’s all-stock proposal at £13.83 a share followed several overtures in November, but was rebuffed by the Entain board, which argued that it “significantly undervalued” the business.
A source close to Entain said that MGM’s offer was far short of what the company expected, particularly given investor appetite for gambling stocks, which had been fuelled by rocketing valuations of American betting companies set to take advantage of the rapidly expanding US sports betting and online gaming market.
There has been a string of tie-ups between established European bookmakers and US businesses looking to buy in expertise to help them tap the American market.
Sports betting and online gambling has only been permitted outside Nevada since the overturn of a federal ban in 2018.
Last year, MGM’s rival Caesars Entertainment bought the UK bookmaker William Hill in a £2.9bn deal, while the Dublin-based betting company Flutter, which owns the PaddyPower and SkyBet brands, spent $4.2bn increasing its stake in the US daily fantasy sports company FanDuel.
Expanding MGM’s online footprint has been a key part of its recently appointed chief executive Bill Hornbuckle’s strategy for the company as it emerges from the painful pandemic crisis.
MGM and Entain have been partners in a $450m 50/50 sports-betting joint venture in the US since 2018, with each company bound to the deal through exclusivity clauses.
Richard Stuber, director of travel and leisure at Numis Securities, said that he could not see any obvious counter-bidders for Entain due to MGM’s ability to buy out the UK group’s share of the joint venture should another acquirer take control of the business.
He added that the relationship between the two “is not as strong as I thought” given MGM’s statement that it had received limited engagement from Entain over the potential takeover.
Entain said it had a “clear growth and sustainability strategy” and that it looked forward “to continuing to work closely with MGM to drive further success in the US through the BetMGM joint venture”.
Barry Diller, whose holding company IAC is MGM’s largest shareholder, told the Financial Times last week that he was “sceptical” that a deal could be done, due to the difficulty of aligning valuations in an all-stock transaction.
He also warned that “joint ventures are awkward to operate and generally do not last”.
MGM’s executive are not planning to rush into a new deal, said a person close to its board, as they plan to build their own digital capacity in the immediate future.
Under the UK’s takeover code, MGM cannot make another approach for six months.
Additional reporting by James Fontanella-Khan