Entain faces possibility of takeover following CEO’s departure
Entain’s Chief Executive Officer, Jette Nygaard-Andersen, (above on left), concluded a three-year tenure marked by a 35 percent decline in the company’s market value.
Nygaard-Andersen’s leadership witnessed the UK-listed sports betting group rejecting an acquisition bid from MGM Resorts International (MGM.N) and initiating a debt-funded merger and acquisition strategy, prompting criticism from activist investors.
The vulnerability stems from Entain’s decision in January 2021 to rebuff MGM’s offer of approximately ￡8 billion, a figure that was 60 percent above its current market value. Nygaard-Andersen’s departure introduces a new chapter for Entain, one that will be closely watched by investors and stakeholders.
SiGMA News discussed the resignation of Jette Nygaard-Andersen and the impact on the public-listed company with macro portfolio manager and commentator, Nick Glinsman, Co-founder of Malmgren Ginsman Parners.
‘The CEO leaving could make it easier for Entain to enter into M&A negotiations with the likes of MGM, or even DraftKings. However, the interim period with the lack of a permanent CEO could also be a deterrent and this means that the operational trends for the next 12-18 months may remain lacklustre’
Nick Glinsman, Macro Portfolio Manager and Co-Founder of Malmgren Glinsman Partners
Successful resolution of HMRC investigation
Nygaard-Andersen, who served as CEO since January 2021, departs after successfully steering the company through the resolution of the HMRC investigation into its legacy Turkish-facing business. This resolution culminated in a ￡585 million deferred prosecution agreement.
Despite the challenges and a less-than-ideal track record, Nygaard-Andersen’s exit raises concerns about the group’s susceptibility to a takeover. With a valuation, including debt, at just eight times forward EBITDA, the company appears undervalued compared to rival Flutter Entertainment (FLTRF.L) at 14 times, according to data from the London Stock Exchange.
In order to maintain independence, the incoming CEO of Entain must confront a substantial ￡3 billion debt burden, exceeding three times next year’s projected EBITDA. Additionally, the new CEO will be tasked with strategic investments in rapidly expanding markets such as Brazil and the U.S., where Entain’s joint venture with MGM has encountered challenges.
This necessitates a departure from Nygaard-Andersen’s M&A-centric approach, shifting towards asset sales in mature markets like Australia to generate capital. To successfully execute this significant change, Entain would benefit from an external perspective, making an appointment from outside the organization a preferable choice over selecting another internal candidate.
Rise in Entain stock on announcement of CEO departure
Entain’s stock witnessed 7.5 percent rise on announcement of Nygaard-Andersen’s departure.
Her recent decision, for example, to finance a ￡750 million (US $939 million) bid for Polish sports betting company STS Holding through an equity sale faced criticism and the move was labelled “illogical” and “value-destroying.”
Hedge funds have also entered the scene. Sachem Head Capital Management, founded by a former colleague of Bill Ackman, has reportedly acquired a stake in the company and Dendur Capital and P Schoenfeld Asset Mgmt LP have also established positions. Eminence Capital has expressed the likelihood of investor support for a revived deal with MGM Resorts International. MGM, which owns half of Entain’s U.S. business, had previously proposed to acquire Entain for US$ 11 billion. Negotiations had collapsed before Nygaard-Andersen’s appointment. In the same year, Entain had rejected a stock-fuelled bid from DraftKings Inc. valued at US$ 22.4 billion.
As of now, Entain’s market value stands at approximately ￡5.4 billion, and the recent surge in its stock price suggests heightened investor interest and potential strategic developments on the horizon.
Entain initiates search for new CEO
The search and selection for a new Chief Executive Officer has begun.
Barry Gibson, Chairman of Entain, expressed gratitude for Nygaard-Andersen’s dedication during challenging times. Gibson acknowledged her pivotal role in crafting a new commercial strategy, foreseeing stronger organic growth and increased profitability for Entain. On a personal note, he conveyed regret at seeing her leave the business.
Nygaard-Andersen shared insights into her decision, stating, “The past three years have been rewarding and challenging in equal measure. The resolution of the HMRC investigation into the legacy business…offers a clean inflection point for me and for Entain.” She highlighted the group’s current status as safe, stable, and sustainable, signaling the opportune moment to pursue new business and career opportunities.
The vulnerability stems from Entain’s decision in January 2021 to rebuff MGM’s offer of approximately ￡8 billion, a figure 60 percent above its current market value. Nygaard-Andersen’s departure introduces a new chapter for Entain, one that will be closely watched amid ongoing market dynamics and potential strategic shifts.
Stella David appointed interim CEO
Taking the reins on an interim basis is Stella David, (above on right), a non-executive director and board member since February 2021. David has been closely involved with the executive team’s efforts to overhaul culture and practices. She has expressed enthusiasm for building on the strong foundations left by Nygaard-Andersen.
David will serve as interim CEO until a permanent replacement is appointed, commencing her role this week. Entain plc. (LSE:ENT) experienced a 0.65% increase, closing at 810.87 pence per share in London on Tuesday, prior to today’s announcement.
Entain’s shares
For a segment of Entain investors, the performance under Nygaard-Andersen’s leadership failed to meet expectations, as evidenced by a 40 percent decline in the company’s shares since August.
A concern raised by investors related to Nygaard-Andersen’s strategy for bolt-on acquisitions, totalling 11 at a cost of US$ 2 billion during her relatively brief tenure. While Entain anticipates the value of these acquisitions doubling over the next five years, skepticism lingers about their true worth.
Entain has already closed two businesses acquired in 2021, and the performance of live score provider 365Scores, purchased in April for ￡120 million, has also faltered under its ownership. Compounding matters, Entain had to secure funds for its acquisition spree at valuations significantly below two takeover offers in 2021, including an ￡8.1 billion bid from MGM, which Entain deemed undervaluing the UK group.
Nygaard-Andersen’s leadership style and spending habits have also drawn scrutiny, with the use of private jets for board meetings in Gibraltar during the pandemic raising eyebrows. Despite the return to normal air travel conditions post-COVID restrictions, Nygaard-Andersen carried on using private aircraft, citing “business-critical” reasons for seven trips on private jets in the past three years. This practice has sparked broader questions about Entain’s cost discipline, particularly as corporate expenses nearly doubled from 2019-2022, reaching ￡91 million.
Is it chaos or a step in the right direction?
Internally, discontent is brewing within the company, described by one high-ranking executive as “organisational chaos.” Attempts to assuage concerns through a meeting with over 50 senior managers following mediocre third-quarter results in November did not fully reassure participants.
As Entain’s share price lagged behind its UK rival, Flutter, the spotlight now turns to whether Nygaard-Andersen’s successor can make more strategic moves to bolster the company’s standing in the market.
