European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> confirmed that it had received a proposal from <a href="https://www.smartkarma.com/entities/draftkings-inc" target="_blank" data-smartkarma-citation="entities:29248:1" rel="noopener">DraftKings Inc (DKNG US)</a>. On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).
The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).
PUSU deadline is 19 October.
There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.
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Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.
</div>
BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.
Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).
Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.

Entain (ENT LN) confirmed that it had received a proposal from DraftKings Inc (DKNG US). On 22 September, the Board said that following an earlier approach at 2,500p/share (mix of DraftKings shares and cash) which was rejected, a further proposal was received on 19 September 2021. DraftKings Inc. revised the offer price to 2,800p/share (630p in cash and and the balance payable in new DraftKings Class A common shares).
The acquisition of Entain could be strategic for DraftKings, which is eyeing international expansion. The consideration represents a premium of 46.2% to Entain’s closing share price on 20 September 2021, 4.5x EV/NTM Sales, 19.2x EV/NTM EBITDA and 39.2x Fwd P/E (source: Capital IQ consensus).
PUSU deadline is 19 October.
There is some interloper risk. In case DraftKings presents a firm offer, MGM could potentially bid again for Entain. Nevertheless, MGM in the past has said that its joint-venture agreement with Entain gives it protection against another entity trying to acquire Entain without its approval.

Moreover, the gambling business is ideal private equity territory. Betting businesses are cash cows and the revenue flows can be (or should be) precisely predicted. The lower cost of capital of private equity firms and the financial discipline introduced are a key advantage in the industry.

BetMGM (Entain’s joint venture in the US with MGM Resorts) continues to perform strongly. H1 NGR of $357m. Number two operator for sports-betting and iGaming across the US with 22% market share, number one operator in iGaming, extending leadership with 30% market share. Total combined investment in BetMGM by joint venture partners expected to be $660m by the end of 2021.
Valuation of Entain. By using the median of comparables 11.9x EV/Fwd EBITDA, the implied valuation of Entain would be 1,628p/share. To value BetMGM, I expect total revenue of $3.6 bn by 2025. By applying a 3.0x EV/Fwd Revenue multiple, the valuation of the JV could reach $10.8 bn, of which $5.4 bn for Entain (equivalent to £3,933 mn, or 672p per share).
Adding the base case plus BetMGM, my longer term TP is 2,300p. The shares seem to be fairly valued at market close of 23 September, nevertheless two takeover attempts in nine months mean a lot of interest in Entain. I would therefore be LONG.

DraftKings/Entain: Cash and Shares Approach

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

<a href="https://www.smartkarma.com/entities/tabcorp-holdings-ltd" target="_blank" data-smartkarma-citation="entities:6837:1" rel="noopener">Tabcorp Ltd (TAH AU)</a> merged with <a href="https://www.smartkarma.com/entities/tatts-group-ltd" target="_blank" data-smartkarma-citation="entities:14615:1" rel="noopener">Tatts Group Ltd (TTS AU)</a> in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated.
Fast forward another three-plus years: after rejecting a A$3bn offer from <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (owner of Ladbrokes) to buy its wagering and media division, Tabcorp <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02358183-3A564328?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">said</a> last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value.
These include a potential sale of the wagering &amp; media ops or a potential demerger - via the separation of the wagering segment or the lotteries business.
The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 
Chairman Steven Gregg said he remains open to a full bid for the wagering ops, but:
<blockquote>
there’s a big gap between where we are and where that would need to be. The ball is really in their court. Source: AFR
</blockquote>
Apollo Global Management was also reportedly kicking tyres, along with bookie Matthew Tripp  - potentially backed the Murdochs.
As always, more below the fold.

Tabcorp Ltd (TAH AU) merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated.
Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value.
These include a potential sale of the wagering &amp; media ops or a potential demerger - via the separation of the wagering segment or the lotteries business.
The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 
Chairman Steven Gregg said he remains open to a full bid for the wagering ops, but:

there’s a big gap between where we are and where that would need to be. The ball is really in their court. Source: AFR

Apollo Global Management was also reportedly kicking tyres, along with bookie Matthew Tripp  - potentially backed the Murdochs.
As always, more below the fold.

On 1 March, <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> <a href="https://www.prnewswire.com/sv/pressmeddelanden/entain-increases-the-offer-price-to-sek-53-in-cash-per-share-in-enlabs-838522676.html" target="_blank" rel="noopener">increased the offer price to SEK 53</a> per share in <a href="https://www.smartkarma.com/entities/enlabs-ab" target="_blank" data-smartkarma-citation="entities:31120:1" rel="noopener">Enlabs AB (NLAB SS)</a>,
<ul>
<li>from the previous offer of SEK 40 per share, which represents a 32.5% premium vs. the initial offer.</li>
<li>This represents c. 4.1x EV/Fwd Revenue, 14.0x EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.</li>
<li>Irrevocable undertakings now represent 50.9%.</li>
<li>If Entain becomes the owner of more than 90% of the shares of Enlabs, Entain intends to initiate a compulsory acquisition procedure.</li>
</ul>
Acceptance period until 18 March. Provided that Entain announces that the conditions of the offer have been satisfied or waived by 23 March 2021, settlement is expected to commence on or around 30 March 2021. The transaction should be completed by the beginning of Q2.
Gross spread is 1.1%, c. 4.5% annually, assuming a maximum of three months to complete (it should be less), and the chances to complete are even higher now. Recommendation is LONG at the current trading levels (SEK 52.4).

On 1 March, Entain (ENT LN) increased the offer price to SEK 53 per share in Enlabs AB (NLAB SS),

from the previous offer of SEK 40 per share, which represents a 32.5% premium vs. the initial offer.
This represents c. 4.1x EV/Fwd Revenue, 14.0x EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.
Irrevocable undertakings now represent 50.9%.
If Entain becomes the owner of more than 90% of the shares of Enlabs, Entain intends to initiate a compulsory acquisition procedure.

Acceptance period until 18 March. Provided that Entain announces that the conditions of the offer have been satisfied or waived by 23 March 2021, settlement is expected to commence on or around 30 March 2021. The transaction should be completed by the beginning of Q2.
Gross spread is 1.1%, c. 4.5% annually, assuming a maximum of three months to complete (it should be less), and the chances to complete are even higher now. Recommendation is LONG at the current trading levels (SEK 52.4).

<a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (formerly GVC) made an offer to acquire <a href="https://www.smartkarma.com/entities/enlabs-ab" target="_blank" data-smartkarma-citation="entities:31120:1" rel="noopener">Enlabs AB (NLAB SS)</a> from a group of sellers for SEK 40 per share in cash on 7 January 2021.
<ul class="">
<li data-bind="visible: !isCollapsed(), html: content">It values Enlabs at around SEK 2,796.98 mn (c. £250 mn), for an implied EV of SEK 2,820.39 mn.</li>
<li data-bind="visible: !isCollapsed(), html: content">This represents c. 3.4x EV/Fwd Revenue, 14.3 EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.</li>
</ul>
Enlabs shareholders holding in aggregate around 42.2% of the total number of Enlabs shares have irrevocably undertaken to accept the offer.  Minimum acceptance condition of 90% plus one share (necessary to squeeze out and delist). Entain therefore needs c. 82.7% of acceptances from the remaining shareholders, which is quite high.
Entain Entain is buying market share and a platform for expansion in the fast growing Baltic region and into Ukraine and Belarus.
By using EV/EBITDA median comps, the implied equity value is SEK 41.59 per share, 3.9% above Entain's offer. On this basis, the offer looks cheap, but not outrageous.
With 42.2% irrevocable undertakings, and no likely interlopers, the offer is highly likely to succeed.
<ul>
<li data-bind="visible: !isCollapsed(), html: content">The shares closed at SEK 40.8, 0.5% below the previous close, but still 2% above the offer price.</li>
<li data-bind="visible: !isCollapsed(), html: content">I would wait for the share price to weaken below the offer price before setting up the spread.</li>
</ul>
Entain is also very upbeat about their own trading statement (21 January).
(This Insight is labelled bearish as I do not see a trading opportunity until the share price of Enlabs drops below the offer price, a sweetened offer is not very likely, in my view).

Entain (ENT LN) (formerly GVC) made an offer to acquire Enlabs AB (NLAB SS) from a group of sellers for SEK 40 per share in cash on 7 January 2021.

It values Enlabs at around SEK 2,796.98 mn (c. £250 mn), for an implied EV of SEK 2,820.39 mn.
This represents c. 3.4x EV/Fwd Revenue, 14.3 EV/Fwd EBITDA and 17x P/Fwd EPS, in line with comps.

Enlabs shareholders holding in aggregate around 42.2% of the total number of Enlabs shares have irrevocably undertaken to accept the offer.  Minimum acceptance condition of 90% plus one share (necessary to squeeze out and delist). Entain therefore needs c. 82.7% of acceptances from the remaining shareholders, which is quite high.
Entain Entain is buying market share and a platform for expansion in the fast growing Baltic region and into Ukraine and Belarus.
By using EV/EBITDA median comps, the implied equity value is SEK 41.59 per share, 3.9% above Entain's offer. On this basis, the offer looks cheap, but not outrageous.
With 42.2% irrevocable undertakings, and no likely interlopers, the offer is highly likely to succeed.

The shares closed at SEK 40.8, 0.5% below the previous close, but still 2% above the offer price.
I would wait for the share price to weaken below the offer price before setting up the spread.

Entain is also very upbeat about their own trading statement (21 January).
(This Insight is labelled bearish as I do not see a trading opportunity until the share price of Enlabs drops below the offer price, a sweetened offer is not very likely, in my view).

On 4 January <a href="https://www.smartkarma.com/entities/entain-plc" target="_blank" data-smartkarma-citation="entities:23926:1" rel="noopener">Entain (ENT LN)</a> (formerly GVC Holdings) confirmed in a <a href="https://entaingroup.com/newsrelease/statement-in-response-to-press-speculation/" target="_blank" rel="noopener">statement</a> that it had received proposals from <a href="https://www.smartkarma.com/entities/mgm-resorts-international" target="_blank" data-smartkarma-citation="entities:16227:1" rel="noopener">MGM Resorts International (MGM US)</a> regarding a possible offer. The combination could create an operator with a large both online and physical presence through retail shops and casinos.
<ul>
<li>The last offer has been 0.6 MGM US x 1 ENT LN.</li>
<li>
Based on closing prices on 31 December 2020 (last trading day prior to the announcement), the proposal represents 1,383p per Entain share.
<ul>
<li>Valuing the equity of Entain at c. £8,092 mn, implied EV of c. £10,206.2 mn and a premium of 22% to Entain’s share price.</li>
<li>13x EV/Fwd EBITDA.</li>
</ul>
</li>
<li>
Entain's shareholders would own approximately 41.5% of the combined company.
</li>
</ul>
The shares of Entain closed on 4 January at 1,420p, 25.3% higher than the previous close.
The move comes just a few months after Entain’s UK rival William Hill agreed to be taken over by its Las Vegas-based partner Caesars Entertainment. Entain shares shot up 25% over 2020, and if that rally continues, MGM or any other prospective buyer would be forced to pay up for Entain.
The key is the valuation of BetMGM and its future prospects in a in a very competitive market populated by deep-pocketed players.
The proposed offer price represents c. 8.0-9.0x trailing EBITDA, vs. 10.0x for comps and c. £3.5 bn for the stake in BetMGM.
<ul>
<li>This offer, as the Board says, seems to undervalue the business.</li>
<li>I view MGM's move as an opening gambit, and believe there is room to sweeten the offer.</li>
</ul>
By using the median of comparables 14.6x EV/Fwd EBITDA, the implied valuation for Entain would be 1,537p.
<ul>
<li>This is 11% above MGM's offer.</li>
<li>Let us keep in mind that BetMGM does not currently contribute to the bottom line, for now, it is a wild card.</li>
</ul>
By using Entain's projections for the US ($20.3 bn by 2025, and expected market share 15-20%), I will use the mid point, 17.5% share for a total revenue of $3.55 bn by 2025. By applying a 2.8x EV/Fwd Revenue multiple, in a blue sky scenario, the valuation of the JV could reach $9.94 bn, of which $4.97 bn for Entain (equivalent to £3,658 mn, not too far away from MGM's implied valuation, or 625p per share).
Therefore my valuation for Entain would be between the base case of 1,537p and 2162p. Taking the mid point would give a longer-term TP of 1,850p.
Recommendation is LONG Entain, or set up the spread in the usual way, although the offer is likely to improve. I would not rule out a dawn raid by private equity.
By using the last closing price of MGM, the shares of Entain are trading 6.9% above the indicated terms.

On 4 January Entain (ENT LN) (formerly GVC Holdings) confirmed in a statement that it had received proposals from MGM Resorts International (MGM US) regarding a possible offer. The combination could create an operator with a large both online and physical presence through retail shops and casinos.

The last offer has been 0.6 MGM US x 1 ENT LN.

Based on closing prices on 31 December 2020 (last trading day prior to the announcement), the proposal represents 1,383p per Entain share.

Valuing the equity of Entain at c. £8,092 mn, implied EV of c. £10,206.2 mn and a premium of 22% to Entain’s share price.
13x EV/Fwd EBITDA.



Entain's shareholders would own approximately 41.5% of the combined company.


The shares of Entain closed on 4 January at 1,420p, 25.3% higher than the previous close.
The move comes just a few months after Entain’s UK rival William Hill agreed to be taken over by its Las Vegas-based partner Caesars Entertainment. Entain shares shot up 25% over 2020, and if that rally continues, MGM or any other prospective buyer would be forced to pay up for Entain.
The key is the valuation of BetMGM and its future prospects in a in a very competitive market populated by deep-pocketed players.
The proposed offer price represents c. 8.0-9.0x trailing EBITDA, vs. 10.0x for comps and c. £3.5 bn for the stake in BetMGM.

This offer, as the Board says, seems to undervalue the business.
I view MGM's move as an opening gambit, and believe there is room to sweeten the offer.

By using the median of comparables 14.6x EV/Fwd EBITDA, the implied valuation for Entain would be 1,537p.

This is 11% above MGM's offer.
Let us keep in mind that BetMGM does not currently contribute to the bottom line, for now, it is a wild card.

By using Entain's projections for the US ($20.3 bn by 2025, and expected market share 15-20%), I will use the mid point, 17.5% share for a total revenue of $3.55 bn by 2025. By applying a 2.8x EV/Fwd Revenue multiple, in a blue sky scenario, the valuation of the JV could reach $9.94 bn, of which $4.97 bn for Entain (equivalent to £3,658 mn, not too far away from MGM's implied valuation, or 625p per share).
Therefore my valuation for Entain would be between the base case of 1,537p and 2162p. Taking the mid point would give a longer-term TP of 1,850p.
Recommendation is LONG Entain, or set up the spread in the usual way, although the offer is likely to improve. I would not rule out a dawn raid by private equity.
By using the last closing price of MGM, the shares of Entain are trading 6.9% above the indicated terms.

United Kingdom

Entain is a global sports betting and gaming company operating in regulated online and retail markets. It offers a diverse portfolio of services, including sports betting platforms and online gaming experiences through brands like bwin, Coral, Ladbrokes, and PartyPoker. Entain was founded in 2004 and is headquartered in Douglas, Isle of Man.

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Entain (ENT LN)

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