2021 is here and already the FTSE 100 is making gains. The index added around 200 points on Monday morning, with some individual stocks pulling the index higher. In particular, the Entain (LSE:ENT) share price jumped over 20% higher, and has so far managed to hold on to those gains. The name Entain may not sound familiar. In fact, the name change only happened a month ago, with the former name being GVC Holdings. Regardless of the company moniker, the FTSE 100 growth stock has started 2021 with a definite bang.
What’s the story?
Entain owns well-known gambling brands such as Ladbrokes, Coral and PartyPoker. As such, anyone buying shares in the business is buying into all of these smaller brands. US-based MGM Resorts‘ recent takeover offer for Entain was all about its target’s strength in the UK sports-betting industry. The takeover proposal was valued at £8.1bn, or £13.83 per share. The move higher for the stock in the New Year was because this offer was actually turned down!
Entain said the offer undervalued the business. Given the share price spike, the speculation is that £13.83 really was too cheap and the business is worth more. From here, another higher offer could be made. If it is, then investors who bought in could receive a windfall if the new price is higher than the current share price (around £14). This windfall would be via the conversion rate into MGM shares. Existing shareholders would receive MGM shares as part of the payout, although a cash alternative is expected to be available. I think MGM may come back with a higher bid, as a UK betting operator has large value for the firm.
A growth stock with potential
MGM and perhaps others US gambling firms would want to buy Entain for several reasons. Firstly, the business is performing well. The FTSE 100 stock has seen its share price almost triple over the past five years. In a recent trading update, the CEO commented that the business has “delivered our nineteenth consecutive quarter of double-digit online growth, along with market share gains in all our major territories”. That’s a very impressive statistic to be able to come out with, and clearly shows Entain is in a profitable, sustainable market.
Another reason companies in the US could be interested is due to the legalisation of sports betting. Instead of setting up a completely new entity, simply buying into an established sports-betting firm can bring rich rewards and plenty of synergies. An example of this was seen last year when a US business bought out William Hill.
If Entain is taken over, investors will be faced with a couple of options. If I bought now and an offer was accepted, I could take the MGM shares and sell them straight away. This would allow me to realise a cash profit from the premium in the conversion of Entain shares to MGM shares. Or I could take the cash offer, making it simpler from an admin point of view.
Either way, I think the growth stock offers me good potential profit, especially in comparison to other FTSE 100 companies.
jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.