Aren’t Las Vegas casinos meant to be tough operators who don’t take no for an answer? It turns out that MGM Resorts doesn’t fit the caricature. Entain, owner of Ladbrokes and Coral, rejected MGM’s £8bn takeover offer a fortnight ago and blunt refusal has done the job. The US firm has walked away, muttering about “discipline” in bidding, which is usually shorthand for not being able to afford what you want.
This turn of events is surprising, but not wildly so. Entain’s hand in this negotiation – or non-negotiation – was always decent. For starters, the board had the backing of its major shareholders in rejecting MGM’s all-share offer. There was even macho talk among investors about the US firm being a 20th century land-based Luddite desperately seeking Entain’s whizzy online gambling technology.
The chat was slightly over-the-top because Entain also comes with 3,000 old-school high street bookies in the UK, but MGM’s lack of tech expertise is real. It is a product of historically tight US gambling legislation that required punters to go in person to places such as Vegas to be fleeced. It is why, when the US started to liberalise its rules a few years ago, MGM recruited Entain for a 50/50 joint venture in the US, called BetMGM.
MGM clearly wanted control of the US venture but its other problem was that it was already pushing the limits of affordability. At £13.83 a share, the all-share proposal would have seen Entain’s shareholders emerge with 41.5% of an enlarged MGM. If the terms had been improved – and some Entain shareholders wanted a lot more – the deal would start to look more like a merger than a takeover.
The two sides will now have to bury any acrimony and concentrate on making a success of the US joint venture. If analysts’ projections are right, the US market could be worth $25bn within a few years, versus about $1bn today. That should concentrate minds.
One can applaud a rare example of long-termism on the part of a UK board and UK shareholders. In the lockdown panic last March Entain’s shares fell to 300p, so refusing £13.83 was not a given. If only such far-sightedness was more common. Proper technology companies, such as Arm Holdings, have been sold down the river in the past.
Deliveroo dances with Wolfson
That’s a quick way to enhance your credibility as a flotation candidate: hire Next’s Simon Wolfson, who tends to appear at, or close to, the top of those “most admired chief executive” lists, as a non-executive director.
It’s a mini-coup for Deliveroo. Wolfson hasn’t taken an outside non-executive gig previously and will have given the food delivery firm’s tyres a hard kick before signing up. Fidelity, a big investor in both firms, seems to have provided the introductions and will be delighted. Talk that Deliveroo might be worth £5bn now sounds slightly less fanciful.
Other Next shareholders may be scratching their heads, though, and wondering if Wolfson, after almost 20 years in post, is thinking about retiring to the back benches of boardrooms.
One strongly suspects that’s not the case. Wolfson’s explanation that Deliveroo, like Next, uses “advanced technology” sounds plausible. Translation: it could be useful in the day job to see from inside how another firm buys IT. One extra-curricular excursion is probably enough, though.
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Finance must confront the Hong Kong question
A sign of the times? Elliott Management, the giant US hedge fund, is closing its Hong Kong office and switching staff to Tokyo and London, reports the FT.
Elliott did not link the decision to Beijing’s imposition of draconian security laws on Hong Kong but, then again, financial institutions rarely make political statements when they don’t have to. A globally active firm with $40bn under management would normally be expected to keep a presence in Hong Kong, still the pre-eminent financial hub in Asia. Now, after 15 years in the territory, Elliott is leaving.
The move should certainly prompt self-examination elsewhere. HSBC seems prepared to be bullied by Beijing for reasons of commercial survival, even to the point of freezing the accounts of pro-democracy activists, but there’s no reason why nimbler firms should stay put. Capital is mobile and, we’re often told, socially responsible these days. Regardless of Elliott’s motives, boards of financial firms should be asking the Hong Kong question.