MGM is Back on the Prowl

Metro Goldwyn Mayer (MGM) was formed in April 1924 by theater magnate Marcus Loew, who orchestrated the merger of Metro Pictures Corp., Goldwyn Pictures and Louis B. Mayer Productions.

MGM is setting up to purchase British gaming company Entain PLC in the latest move by a casino operator to double down on the online-gambling business.

Just recently, MGM offered to buy the owner of the well-known British gambling company Ladbrokes, which is valued at $9 billion. The offer, which would have a substantial stock element, comes after an earlier, almost $10 billion all-cash route was turned down. The new bid comes with financial backing from MGM’s largest shareholder, InterActiveCorp., [$IAC]

The precise details of the new bid couldn’t be divulged, but it’s well above the GBP12.85 a share MGM had previously offered in 2019. There is no promise Entain will be receptive to the new offer or that there will be a deal struck at the table.

A merger could create one of the few large gaming companies in the world with a yuge online and bricks-and-mortar presence. It would come on the heels of other recent consolidation in the industry. Like its cohorts, MGM has been under pressure as the pandy kept its million dollar baby– casinos and hotels on the Las Vegas Strip — totally closed down, or operating at sharply reduced capacity for much of 2020.

During a golden three decades from 1924 to 1954, the Culver City-based studio dominated the movie business, famously attracting “more stars than are in the heavens” and creating a Best Picture nominee at the Academy Awards every year for two straight decades. Historically, in 1939 two of MGM’s most iconic films, Gone With the Wind and The Wizard of Oz, were both nominated for Best Picture.

The online-gaming market was already starting to boom before pre-pandy gave it an additional boost. That has prompted casino operators like MGM to pivot their businesses even faster than planned, often through partnerships and acquisitions.

MGM currently derives a very small portion of its revenue from online betting, which casinos long viewed as a threat but increasingly see as an opportunity as people socially distance at home and the pandemic keeps gamblers away from slot machines and blackjack tables. The trend toward online gambling isn’t expected to reverse any time soon.

Entain, known as GVC Holdings until recently, is one of the U.K.’s largest gaming companies after it penned a $5 billion deal that brought Ladbrokes on its team in 2018. Its shares jumped as the pandy brought online gaming center stage. Las Vegas-based MGM has a market value of about $16 billion and is widley known for its casino properties, like the Bellagio and Mirage.

Barry Diller’s internet shop IAC became MGM’s largest shareholder in August, leaking a 12% stake worth about $1 billion. It said at the time it planned to work with the company to expand its online-gambling business. Mr. Diller, IAC’s chairman, and CEO Joey Levin also joined MGM’s board. Vegas Sports Betting: Madoff Style

MGM’s shares ended the year down about 5% while Entain’s closed up around 30%, possibly in a nod to its potential as a takeover target.

Caesars Entertainment [$CZR] landed a $4 billion deal to gobble up U.K.-based William Hill PLC, which already has a joint venture with the MGM rival. Caesars shareholders cheered the deal, with its shares ending the year up about 25%. The transaction is slated to close in March.

Investors, meanwhile, have been piling into companies with the potential to be major players in the growing online-gaming market, especially in the U.S. Share prices of DraftKings [$DKNG] and Penn National Gaming [$PENN] soared almost 340% and 240% in 2020, respectively.

DraftKings IPO’d in April through a transaction with a blank-check company and a merger with a small gambling provider simultaneously. Penn National in early 2020 took a sizable stake in Barstool Sports, which gave it exclusive rights to use the media brand in its sports-betting products.

The management teams of MGM and Entain have an ongoing kinship. Since 2018, they have become exclusive partners on BetMGM, a growing online-gaming company both parties recently additionally funded. BetMGM, which uses Entain’s technology and MGM’s licenses and brands, is operating in a few states including Nevada, New Jersey and Indiana. It has plans to expand into several more this year.

$MGM YTD

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