MGM Stock Degraded as DraftKings’ Entain Bid Place Casino Operator in Tough Situation

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MGM Resorts International (NYSE: MGM) was yesterday trading high, joining other gaming facilities to the upside despite an analyst degrade of the Bellagio operator.

In a note to clients yesterday, Susquehanna Financial Joseph Stauff reduced his rating on MGM stock from neutral to negative with a $36 price target. That is about 25% below the current shares and well below the consensus price forecast of $47.66.

Stauff’s degrade of the casino giant is placed in simple terms. The analyst discerns DraftKings’s (NASDAQ: DKNG) hunt of Entain Plc (OTC: GMVHY), MGM’s partner on the BetMGM, as potentially declining MGM’s online hopes.

The analyst said;

“We see DKNG’s bid for Entain as consistently aggressive, out-maneuvering MGM for control of BetMGM and weakening its digital prospects in all likely scenarios.”

Last month, DraftKings Shaked up the market with a $20.5 billion offer to Entain, which the target declined. Showing it is devoted to complete the marriage, the Boston-based sportsbook operator is offering a $22.4 billion stock and cash proposal for the Ladbrokes owner. Under UK law, DraftKings has until October 19 to make an official offer to Entain.

Risks for MGM since DraftKings is not coming in peace

Although it has been acknowledged that DraftKings’ bid for Entain places MGM in a problematic situation, the consensus is creating that huge hint to MGM in this plan. It will require finding a new technology partner for BetMGM.

From the MGM perspective, some market observers are twisting things, saying the gaming firm must approve a BetMGM takeover if that is what DraftKings is planning for. If that is not the case, MGM has cards to play to receive what it needs, which is in full control of BetMGM.

Susquehanna’s Stauff gives an imperative, adversary view, claiming the consensus view inappropriately assumes DraftKings comes in peace. He suggests it is not reasonable to speculate DraftKings is running after Entain simply for technology and that the supplicant will pave its way to accommodate MGM, one of the biggest competitors.

Joseph Stauff states even the best-case scenario for MGM is still dismissive since if regulators or MGM itself obstruct DraftKings’ bid for Entain, the casino firm could still be looking at a significant margin hit at BetMGM.

Other disgusting outcomes for MGM

To be fair, Susquehanna earlier spoke brilliantly about DraftKings’ run at Entain, formulating it in terms of long-term gain and short-term pain for the stock.

On his part, Stauff sees one of two scenarios coming to an end. Either DraftKings purchases Entain and accepts the 50% stake in BetMGM as a step toward owning the sports betting and iGaming facility outright, or MGM is pushed to cover over the top and bid more than $25 billion for Entain. The analyst states either choice could lead to significant drawbacks in MGM.

MGM offered $11.06 for Entain in January, but the offer was rejected. However, it was highly expected the suitor would offer another bid before the end of the year.

DraftKings big game pursue

If DraftKings make those, as mentioned earlier, $22.4 billion bid a formal offer, that price spike represents almost $1.3 billion more than its closing market capitalization.

The increased bid for Entain concludes DraftKings is hunting for giants in the sports wagering field and that it is not afraid to use its equity as currency. Last month, the gaming operator announced it is purchasing Tilman Fertitta Golden Nugget Online Gaming (NASDAQ: GNOG) for $1.56 billion in stock, a deal many investors and analysts saw as a tipping point for more sports wagering and iGaming consolidation. DraftKings might have other motivations in making a run at Entain.