The billionaire chairman of MGM Resorts’ largest shareholder IAC has expressed doubt that the US casino group’s attempt to take over UK gambling business Entain will succeed, despite his company promising increased investment in MGM as part of the deal.
“It would be great if MGM could do this with Entain but whether it happens or not, I am sceptical and if it doesn’t, I am sanguine. I am absolutely sure we will be in a leadership position whatever,” Barry Diller told the Financial Times.
IAC said on Friday that it would invest an additional $1bn in MGM to fund a cash alternative for Entain shareholders unwilling to accept shares as part of MGM’s all-stock proposal, which values the FTSE 100 owner of the Ladbrokes and Coral brands at about £8bn.
Entain’s board has rejected the proposed offer, arguing that it “significantly undervalues” the business. It also questioned “the strategic rationale” of a merger.
Wes McCoy, investment director at Standard Life Aberdeen, a top-five Entain shareholder, said he backed the board’s stance: “I definitely concur with Entain’s strong response to it . . . We want to see proper value for the fact that Entain is so strong digitally in all its jurisdictions.”
Mr Diller, who launched the Fox television network for Rupert Murdoch before building his own digital media empire, has a history of buying and expanding online businesses through IAC. The company owns more than 30 digital and media brands including Ask.com and The Daily Beast.
He said that in an all-stock transaction, public market values of the companies “have to align completely” resulting in a high level of uncertainty around the deal.
But he added: “Anyone who questions the strategic rationale for [merging] these companies is not thinking clearly.”
He pointed to the growth of MGM’s 50/50 joint venture, BetMGM, with Entain to offer sports betting in the rapidly expanding US market and the logic of combining MGM’s brand and casinos with Entain’s online expertise.
He also suggested that MGM could buy Entain’s share of the joint venture should another acquirer for Entain emerge, an option that someone close to the MGM board described as “a poison pill, in a way”, referring to a defence tactic to make targets appear less attractive to other potential buyers.
The loss of the joint venture would deny Entain its foothold in the US, which analysts estimate could become the world’s largest legal gambling market at upwards of $13bn, following the overturning of a federal ban on sports betting in 2018.
Entain’s joint venture with MGM, in which both parties have invested a total of $450m, has yet to turn a profit.
If MGM did move to take control of the joint venture it would follow the precedent of rival casino company Caesars Entertainment, which stipulated as part of its £2.9bn takeover of William Hill that it would cut its US partnership with the UK bookmaker if it accepted a competing offer.
IAC announced last August that it had invested about $1bn building a 12 per cent stake in MGM, stating in a letter to shareholders that “MGM presented a ‘once in a decade’ opportunity for IAC to own a meaningful piece of a pre-eminent brand in a large category with great potential to move online”, despite it being battered by the coronavirus pandemic.
Mr Diller said that, whatever the outcome of the Entain deal, MGM still had many opportunities that its rivals did not given its brand and dominant position in the gambling hub of Las Vegas. “Frankly, if we didn’t [lead the gaming market] given the resources and advantages we would be utter failures,” he said.