Eminence Capital pens open letter to Entain about “illogical” decision to buy STS

June 16, 2023
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The asset management claims there is a lack of understanding from the Board of Directors, and a resulting lack of confidence from shareholders.

Asset management firm, Eminence Capital, has sent a open letter to Entain’s Board of Directors regarding its announcement of a plan to acquire STS Holdings. The firm, which has an economic interest of nearly 13.2m shares of Entain, has alleged the decision to be “value destructive.”

As shareholders since 2020, Eminence Capital is concerned for the strong, separate values that both Entain’s online sports betting platform and its 50% stake in BetMGM have earned, which the firm feels could be muddled should the assets be combined. Entain’s previous decisions on corporate structure have included “constructive conversations” between Eminence Capital and Entain’s C-level executives.

The letter asserts, “We have been explicit that Entain has earned the right to continue its pursuit of strategic targets within the global online gaming industry, but that equally important is funding these deals with the lowest cost of capital.

“We were therefore disappointed to learn that Entain has decided to fund the recently announced purchase of STS Holdings by issuing shares representing approximately 8% of its market cap. While we can support the company pursuing seemingly rational acquisitions, funding them with highly undervalued equity is an empire building, shareholder value destroying strategy.”

Entain’s stock price has suffered a drop of over 8% since the announcement of this deal, which the firm calculates as £650m ($831.6m) in lost market value.

In its letter, Eminence Capital has called the deal “accretive,” as well as “perplexing” and “illogical.” The firm spares no effort in its ruthless approach, speaking largely in the interest of the shareholders.

Further comment on the deal said, “It demonstrates that management either doesn’t understand finance or, worse, that they believe the company’s shareholders are naive.”

The letter cautions that shareholders will begin to lose confidence in the company’s long-term value strategies, which could even lead to the “support of a sale of the company to MGM at a materially lower price.”

Ricky Sandler, CEO and CIO of Eminence Capital signs the letter after the promise that the firm will “continue to make its voice heard” surrounding Entain’s future Board-level decisions.

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