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Potential Entain acquisition could end MGM’s Japan IR pursuit: Bernstein

Ben Blaschke by Ben Blaschke
Wed 6 Jan 2021 at 04:57
MGM looking to win hearts in Osaka with May IR exhibit
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Moves by MGM Resorts International to acquire UK-based sports betting and iGaming giant Entain could result in the company either reducing its stake in a Japanese integrated resort or exiting Japan entirely, according to analysts at brokerage Sanford C Bernstein.

MGM confirmed earlier this week that it has proposed an offer to Entain, owner of popular betting brand Ladbrokes, of 0.6 MGM shares for each Entain share, which would value the latter at around US$12.9 billion.

While the likelihood of any such deal transpiring remains uncertain given that Entain has stated the offer is below value, should it eventually proceed it would most likely “reduce MGM’s appetite for a large-scale Japan development that the company has been pursuing in Osaka.

“The Japan opportunity has been plagued with delays (largely due to COVID) and we maintain concerns around the high cost of development required and the potential returns,” said Bernstein’s Vitaly Umansky, Kelsey Zhu and Tianjiao Yu.

“MGM may wind up backing away from a Japan integrated resort or reducing its partnership stake (which has not been announced in any event).”

Industry experts contacted by Inside Asian Gaming this week said MGM’s interest in acquiring Entain – already a 50/50 partner in the company’s BetMGM initiative – is not surprising given that President and CEO Bill Hornbuckle has demonstrated a clear focus on the US domestic market since taking over from Jim Murren last year.

In his first earnings call as MGM’s top dog in July, Hornbuckle said he “liked that we are not fully ‘all-in’ on this [Osaka] investment and we like the fact that there is probably going to be a delay and a reopening of some of the conversations that will hopefully make this a better investment for anyone that is interested in it, most notably us.”

Bernstein noted Tuesday that MGM was eyeing an opportunity to “reshape itself into a digital betting growth franchise with a strong bricks and mortar cash flow generating component,” in the United States.

Less likely, but not impossible, is the prospect of MGM selling off its Macau interests via MGM China.

“We do not expect MGM’s interests in MGM China to be impacted by any potential transaction with Entain as we do not believe MGM would look to reduce its Macau exposure,” the analysts said.

“Longer term, following concession renewals, and depending on MGM’s strategic focus, we can see Macau becoming less core for MGM Resorts. With the Macau government’s blessing, an MGM Resorts divestiture of MGM China may be a path followed (but this is not going to happen anytime soon most likely, if ever).”

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Ben Blaschke

Ben Blaschke

A former sports journalist in Sydney, Australia, Ben has been Managing Editor of Inside Asian Gaming since early 2016. He played a leading role in developing and launching IAG Breakfast Briefing in April 2017 and oversees as well as being a key contributor to all of IAG’s editorial pursuits.

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