MGM makes $11B offer for Ladbrokes owner Entain

MGM Resorts International is seeking to buy British gaming company Entain PLC, in the latest move by a casino operator to double down on the red-hot online-gambling business.

Entain, which owns the British gambling brand Ladbrokes, said Monday that it has received an £8.09 billion takeover proposal, equivalent to $11.06 billion, but said that the offer significantly undervalues the company. MGM’s bid has the financial backing from its largest shareholder, IAC/InterActiveCorp, according to people familiar with the matter, and comes after an earlier roughly $10 billion all-cash overture for Ladbrokes was rebuffed.

The Wall Street Journal first reported on MGM’s takeover approaches on Sunday before Entain disclosed details in a regulatory filing.

A combination could create one of the few large gaming companies in the world with a significant online and bricks-and-mortar presence. It would follow other recent consolidation in the industry.

Like its peers, MGM has been under pressure as the coronavirus pandemic kept its biggest moneymakers—casinos and hotels on the Las Vegas Strip—closed or operating at sharply reduced capacity for much of the year.

The online-gaming market, meanwhile, already was booming before the pandemic gave it an additional boost. That has prompted casino operators like MGM to pivot their businesses even faster than planned, often through partnerships and acquisitions.

MGM currently derives a small portion of its revenue from online betting, which casinos long viewed as a threat but increasingly see as an opportunity as people socially distance at home and the pandemic keeps gamblers away from slot machines and blackjack tables. The trend toward online gambling isn’t expected to reverse any time soon.

Entain, known as GVC Holdings until recently, is one of the U.K.’s largest gaming companies after it struck a roughly $5 billion deal that put Ladbrokes under its roof in 2018. Its shares rose recently as the pandemic brought online gaming center stage.

It said MGM indicated an offer of 0.6 MGM shares for each share held. Based on its closing price of 1,133.50 pence on Dec. 31, the indicated offer values each Entain share at 1,383 pence. MGM has also said that a limited partial cash alternative would also be available to accepting Entain shareholders.

It has also asked MGM to provide additional information in respect of the strategic rationale for a combination of the two companies.

Las Vegas-based MGM has a market value of about $16 billion and is best known for its casino properties that include the Bellagio and Mirage.

Barry Diller’s internet conglomerate IAC became MGM’s largest shareholder in August, disclosing a roughly 12% stake then valued at roughly $1 billion. It said at the time it planned to work with the company to expand its online-gambling business. Mr. Diller, IAC’s chairman, and Chief Executive Joey Levin also joined MGM’s board.

Another of its top shareholders, Corvex Management LP, also has a seat on the board held by the activist hedge fund’s founder, Keith Meister.

Caesars Entertainment Inc. recently struck a roughly $4 billion deal to buy U.K.-based William Hill PLC, which already has a joint venture with the MGM rival. Caesars shareholders cheered the deal, with its shares ending the year up about 25%. The transaction is slated to close in March.

Investors, meanwhile, have been piling into companies with the potential to be major players in the growing online-gaming market, especially in the U.S. Share prices of DraftKings Inc. and Penn National Gaming Inc., for example, soared almost 340% and 240% in 2020, respectively.

DraftKings went public in April through a transaction with a blank-check company and a merger with a small gambling-technology provider simultaneously. Penn National in early 2020 took a significant stake in closely held Barstool Sports Inc. in a deal that gave it exclusive rights to use the media company’s brand in its sports-betting products.

MGM’s shares ended the year down about 5% while Entain’s closed up around 30%, possibly in a nod to its potential as a takeover target.

The management teams of MGM and Entain have existing ties. Since 2018, they have become exclusive partners on BetMGM, a small but growing online-gaming company both parties recently additionally funded. BetMGM, which uses Entain’s technology and MGM’s licenses and brands, is operating in more than 10 states, including Nevada, New Jersey and Indiana. It has plans to be in more than 20 by the end of this year.

—Ian Walker contributed to this article.