Eminence Capital Criticizes Entain And STS Group Deal

Eminence Capital investment fund is questioning the M&A strategy of the FTSE100 gaming group Entain Plc, pointing to a negative impact on the company’s value and its long-term prospects.

A public letter written by Eminence CEO Ricky Sandler criticized Entain’s management for its decision to spend £600m to buy STS Group by issuing new shares, more than about 8% of the company’s market capitalization.

Sandler describes Eminence Capital as a strategic long-term investor in Entain, having purchased 13.2 million shares since 2020, roughly 2.1% of Entain Plc’s total shares. 

Eminence Capital claims two of Entain’s most valuable assets — its expanding international online sports betting and gaming platform and its 50% stake in the BetMGM joint venture in North America — have been undervalued in Entain’s ongoing M&A strategy.

The wealth management group is of the opinion that investors should be concerned about financing M&A deals with heavily undervalued capital, which is considered a value-destroying strategy. In addition, Entain’s management and corporate governance are being accused of empire building. 

The letter also notes apparent controversy from Entain’s management, as they had previously rejected takeover bids due to the low price, but have now decided to issue the shares at a significantly lower price.

The fund noted that the market reacted negatively to the deal, as Entain’s share price fell by more than 8%. This resulted in a loss of market value of over £650 million, nearly equal to the price paid for the acquisition of STS Group.
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