Shares of Entain (LSE:ENT) climbed more than 3% on Tuesday after investors reacted to a proposed acquisition of MGM Resorts International (NYSE:MGM), a move that could have implications for the ownership structure of BetMGM, the U.S. sports betting joint venture jointly owned by the two companies.
The market response followed an announcement from People Incorporated, formerly known as IAC, which revealed it had submitted a non-binding offer to acquire all MGM shares it does not already own for $48.30 per share in cash.
People Offers Premium to Acquire Remaining MGM Shares
People, which currently owns 26.1% of MGM’s outstanding common stock, said its proposal represents a 24.1% premium to MGM’s 30-day volume-weighted average share price through May 29. The offer also reflects a premium of more than 30% to the company’s 90-day volume-weighted average share price and a 10.6% premium to MGM’s latest closing share price.
The proposal would effectively take MGM private if completed, with People expecting to hold slightly more than 50.1% of the combined company following the transaction while other investors retain minority stakes.
According to the bidder, the acquisition would be financed through a combination of existing cash resources held by both People and MGM, supplemented by additional debt and equity financing commitments.
BetMGM Seen as Potential Follow-On Opportunity
Analysts at Morgan Stanley suggested that any change in MGM’s ownership structure could create opportunities for further strategic action involving BetMGM.
“Any potential change in MGM ownership could raise the possibility of a follow-on transaction regarding the JV, on the logic that it could increase the owned digital operations and potentially accelerate multichannel delivery,” the brokerage said.
Morgan Stanley added that separating BetMGM’s platform from its current structure could be technically achievable. The bank estimates BetMGM could generate EBITDA of $451 million by 2027 and assigns a valuation of 250 pence to the business within its broader assessment framework.
Barry Diller Says MGM Is Undervalued
In a letter addressed to MGM’s board, People chairman and senior executive Barry Diller argued that the company’s assets are not being fully recognized by public market investors.
“We continue to believe the market materially undervalues the power and durability of MGM’s assets,” Diller added.
Diller also stated that MGM’s assets and businesses were “not currently realizing their full potential in the public markets” and said taking the company private would provide a better platform for long-term value creation.
Management Continuity Planned
People noted that the proposed transaction would not be contingent on financing and indicated that MGM’s existing management team would remain in place following completion of the deal.
While the proposal remains non-binding and subject to review by MGM’s board, investors are closely watching developments for any potential impact on BetMGM, which has become one of the leading operators in the rapidly growing U.S. online sports betting and gaming market.
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