Shares of gambling giant MGM Resorts (MGM 0.98%) jumped as much as 6.7% in trading on Wednesday as investors weighed the impact of DraftKings (DKNG 1.57%) potentially acquiring Entain (ENT 0.07%). MGM's online gambling business, BetMGM, is a 50-50 partnership with Entain, and MGM has to "consent" to any change in the structure of the business. As of 12:15 p.m. EDT, the stock was up 6.09%.
Yesterday, reports of an offer from DraftKings to acquire Entain were floating around, but we didn't know anything for sure. As the day went on, the companies confirmed talks, and the latest reports are the bid has increased to over $22 billion for Entain.
MGM Resorts also weighed in, saying that "any transaction whereby Entain or its affiliates would own a competing business in the U.S. would require MGM's consent." The company clearly wants to stay in the U.S. online gambling market and may try to use this buyout as leverage to acquire the 50% of BetMGM that it doesn't currently own. I think the move today is investors betting it can acquire that stake at a relative discount, taking full control of its online gambling destiny.
I have long thought that MGM's online gambling business is undervalued by investors. BetMGM isn't far behind DraftKings in terms of U.S. revenue, and MGM would love to own BetMGM all by itself. What it's willing to pay to make that happen isn't yet known, but given DraftKings' offer for Entain, it's possible the door is open for MGM to make a deal.
There are a lot of unknowns going forward, but MGM is clearly in a power position in these negotiations. That's good news for MGM's stock, and even if no deal happens, I like MGM's future as a growth stock in online gambling. If it buys the rest of BetMGM for a relative value, that would just be an additional win for the stock.