Two of the major Las Vegas tentpoles are fielding take-over offers, but could this also reshape the US online gaming landscape? NEXT.io asks Macquarie’s Chad Beynon.
You know it goes – you wait ages for a transformational Las Vegas M&A deal and then two come along at once.
Restaurant and gaming tycoon Tilman Fertitta tabled a $17.6bn take-private of Ceasars Entertainment last week at a $31.00 per share price. Never to be outdone by a Strip rival, MGM just days later received its own takeover bid, from Barry Diller’s People Incorporated, the rebranded IAC internet and media conglomerate, at an $18bn valuation.
If approved, the two M&A offers have the potential to significantly reshape both the online and land-based gaming markets. Why now and what does this mean – and what would Diller choose to do with British JV partner Entain? NEXT.io asks Macquarie analyst and managing director Chad Beynon the big questions.
Why are these deals happening now?
These twin deals come after a significant period of weak trading for gaming stocks generally, according to Beynon.
He told NEXT.io: “These stocks are trading at historical low levels. So, I think these investors, whether it’s IAC/People’s or Tilman Fertitta – they’re strategic operators, but I really just think they see value at these levels.
“They know that these businesses should not be impacted as much by AI. Travel and experiences continue to be something that people are bullish on for the next several years.”
Beynon added the lack of new iGaming states has weighed on both business’ valuations in recent years: “I would believe that that’s more of the thesis; buying a cheap stock that should grow when real money gaming penetration increases in the United States and globally.”
Will they seal the deal?
Beynon said Macquarie initially believed the Fertitta offer would be higher given repeated communications from Caesars’ management that the stock was undervalued.
However, despite this, he argued the Caesars sale is more of a sure thing than MGM.
He highlighted most investors believe Fertitta’s bid will get over the line, with it unlikely there will be any other bids ahead of the go-to-shop period ending 11 July. But the Diller offer, Beynon argued, should be thought of as more of a starting point for further bids – highlighting that the share price had been trading above the $48.30 asking price.
Additionally, the analyst noted People Incorporated doesn’t have the financing just yet, and that the floated deal is for 51% of the business.
Will the deals lead to further M&A?
The analyst said most observers expect Fertitta to divest several land-based properties following the acquisition, including potentially one in Las Vegas.
However, the digital side is arguably where larger scale divestment could occur. Fertitta previously sold the Golden Nugget online arm to DraftKings – a sign that Caesars’ own respectable online gaming operation could be on the chopping block. This itself could represent a continuation of the company’s strategy – with Caesars having previously discussed the possibility of a digital divestiture.
People Incorporated however is more of a digital-first company and already features online travel and dating apps in its portfolio. Diller’s original thesis for investing in MGM several years ago was constructed around them being a digital company that had the potential to go global, according to Beynon.
He added: “The big question is does this change the outlook to buying out the 50% stake of BetMGM or buying all of Entain?
“Most investors believe that for MGM to own all of Entain – the tricky thing is what’s going on with the UK right now with the tax scheme.”
Diller had supported MGM’s original £8.1bn acquisition offer of Entain, a deal the company rejected at the time, and a decision that looks questionable in hindsight.
“What are they going to do if they gain control of this? Would they spin out the [BetMGM] business? Would they IPO it? IAC historically has been very good about spinning out businesses from the parent business.
“So, the fact that that BetMGM is still part of MGM, that could be a catalyst if this deal gets done, that it could be spun out.”
