JP Morgan analyst Joseph Greff was more upbeat, saying the deal “makes sense” as part of a larger picture. Not that MGM is offering Entain chump change. That $11 billion would be a 22% premium to Entain’s last closing price and would give shareholders 41.5% of MGM. Have Entain executives let success go to their heads? (Were I CEO Bill Hornbuckle I’d leave Entain dangling a while. He’s got until Feb. 21 to fatten the offer.) Greff says of BetMGM that it is “a fairly small business with significant and attractive growth.” He likes the idea of diversifying MGM away from its dependence on Macao and terrestrial U.S. casinos (see: Strip, Las Vegas). And by making it an all-stock transaction, Leo the Lion doesn’t balloon his leverage, which is already pretty high.
Greff continues that “the same strategic rationale” as the Caesars Entertainment acquisition of William Hill is at play and that there’s just as much likelihood of a competing bid emerging. “We don’t think MGM will look to sell parts of Entain’s business … We also like that MGM is taking advantage of its recent equity price strength and valuation to acquire Entain. Overall, the deal, in theory and subject to whatever additional proposals MGM would make to Entrain [sic], makes sense to us and positions MGM well for digital/mobile gaming growth.” Whatever’s making Entain balk, it might include the fact that Caesars bought William Hill for 11X cash flow, while MGM’s offer is 9.6X. Still, we think Entain is missing out on a good thing.