"Outraged" Entain shareholder slams STS deal as "perplexing" in damning open letter

An Entain shareholder has labelled the operator’s move for STS Holdings as “perplexing on many levels” in an open letter slamming the decision.

Eminence Capital, which holds around 13.2 million shares in Entain, equating to a 2.1% stake, said the Entain board and management team had been “tone deaf” in its approach for Poland’s market leader.

The New York-based investment fund has owned Entain stock since 2020.

Eminence Capital said the move for STS was “destructive to shareholders” and that it would continue to make its voice heard to the Entain board in an effort to lobby for alternative decisions.

Entain’s share price has fallen by around 8% since the £750m deal to acquire STS was announced, in what has been described as a shareholder revolt.

In the open letter, Eminence Capital said Entain possessed two highly valuable assets in the shape of its 50% stake in the BetMGM JV and its impressive international business.

The US fund added that it respected the FTSE 100 firm’s strategy to target businesses such as STS, but this should be done with the lowest cost of capital.

Eminence Capital said: “We believe that multiple attractive and value-creating paths exist for Entain to raise capital to fund its M&A initiatives, including the potential divestiture of some or all of its stake in the BetMGM JV.

“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. This approach is perplexing on many levels.

“While we can support the company pursuing seemingly rational acquisitions, funding them with highly undervalued equity is an empire-building, shareholder-value-destroying strategy.

“Further, that the Entain board has previously rejected multiple takeover approaches at materially higher prices on the grounds that those offers undervalued the company, but then turn around and issue equity at depressed prices for an asset that is at best a ‘nice to have’, is illogical.”

Eminence Capital added that it was “outraged” by the move and that the share price drop showed other shareholders held similar sentiments.

The firm added: “The market reaction to this equity offering should be a wake-up call to Entain’s tone deaf board and management team.

“As shareholders lose confidence in Entain’s ability to allocate capital and create long-term value, it is quite likely they will support a sale of the company to MGM at a materially lower price than previously assumed.”