MGM is pushing its luck with a low Ladbrokes bid – but it might still win the hand

There’s nothing like a good takeover battle to blow away any lingering festive hangovers in the City and casino operator MGM Resorts has served up a cracker.

The Vegas giant, which owns the MGM Grand and the Bellagio among others, has proposed an £8.1bn all share merger with Ladbrokes owner Entain. The pair have a joint venture in the US, where individual states have been falling over each other to legalise sports betting because it’s a money-spinning winner for their threadbare exchequers.

MGM’s approach – the second such sally – was confirmed in a statement to the stock exchange following media reports over the weekend and immediately drew comparisons with Caesars Entertainment’s gobbling up of its partner William Hill. If you can’t beat ’em, eat ’em.

In reality this is a very different situation. First things first, comparing Entain to William Hill is a bit like putting a supertanker next to a tugboat.

Hill’s bet big on the US and hit the ground running with the help of Caesars, but elsewhere its engines had been coughing and spluttering. The business was a bit of a basket case, having been let down by poor leadership and left on the shelf as a wave of consolidation swept the UK gambling industry. In taking Caesars £2.7bn, many of its shareholders were cutting their losses.

By contrast, Entain, previously known as GVC, went from Aim-listed minnow to FTSE 100 monster courtesy of swashbuckling CEO Kenny Alexander, a master dealmaker and poker player who abruptly folded last summer, handing his cards and an international giant over to tech wiz Shay Segev.

The operation Segev runs has licences in 20 jurisdictions and in excess of 20 consumer brands. They include Coral, Bwin, Partypoker, Eurobet, Foxy Bingo and Gala in addition to Ladbrokes.

The shares have, meanwhile, given investors a good hand and a good ride. 

Caesars had little interest in Hill’s non-US business, including its substantial British betting shop estate, and has signalled that it will seek to offload them. That sort of thing doesn’t appear on the cards here.

Entain’s US business has, in partnership with MGM, been growing like invasive Japanese knotweed, but it’s a much smaller part of the whole than Hill’s US operation was. It will do well to account for 5 per cent of Entain’s revenues come the end of the year.

The group is, meanwhile, something of a digital dynamo. Entain says it questions the “strategic rationale” of the proposed transaction. What it could do is haul MGM’s land based business into the digital age. If that’s the game, then the price ought to reflect it. Right now it doesn’t do that.

MGM’s offer represents a 22 per cent premium to Entain’s closing price before it reports of its interest emerged. It looks stingy when you consider Entain’s prospects, which look good even if the sizeable UK part of its operation is feeling the squeeze as gambling regulations are belatedly buffed up. It looks positively threadbare when you consider Hill’s got 25 per cent from Caesars.

The proposal also comes in the form of US paper that a sizeable number of Entain’s UK shareholders won’t want and will have to offload.

The world has fallen out of love with the UK stock market because of Brexit and the instability sown by the nation’s grossly incompetent rulers. But while Britain might be a bad bet it still has some attractive companies.

This is far from the first time an overseas predator has sought to capitalise from the undercooked share prices of British businesses, and it won’t be the last. Factor in the willingness of the UK market’s investors to fold weakly even when they have a strong hand and you can hardly blame MGM for taking a pop.

Entain’s shareholders ought to realise they’re being taken for a ride with a proposal that doesn’t come close to matching the potential of the business they own. That’s the company’s current stance. 

But is MGM is really pushing its luck? Short-sighted City institutions have sold the family silver for pennies on the pound, or the dollar, before. As things stand, the US predator will have to sweeten the pill to get its hands on Entain, but if it can find the sugar it can take the pot.