Eminence Capital, the investment firm located in New York that currently owns around 13.2 million shares in the popular FTSE 100 sports betting and gaming group Entain, has published an open letter addressing the latter’s board of directors in regard to their proposal to acquire STS Holdings. 

The Harshly Critical Letter, Accusing Entain of Lack of Logic 

In the respective letter signed by chief executive officer/chief information officer Ricky Sandler, Eminence Capital has severely criticized Entain’s decision to purchase STS, describing STS as “at best nice to have”. 

At the same time, the investment company used the letter to strengthen its opinion that Entain was not making use of any logical thinking by continuing to pursue the said agreement which would value STS at 12 x EBITDA while issuing Entain stock at 7 x EBITDA.

Eminence also used the argument of Entain’s decreasing stock by over 8% which has generated a loss of £650 million ($830 million) in terms of value on the market. The amount is similar to the one that Entain would have to pay in exchange for STS Holdings.

Entain’s leadership was also criticized in a similar manner for expressing its support for the potential acquisition. Eminence Capital used the expression “tone deaf” to further explain its stance while adding that the management team does not understand the way finances work or, even worse, to their opinion, they think of shareholders as being naive. 

Eminence explained that while it is interested in supporting Entain in its pursuit of acquisitions and mergers that can be considered rational, it would refuse to fund them with equity that is highly undervalued. This, believes Eminence, would represent a strategy that would destroy the value for shareholders as well as an empire. 

Only Supporting Attractive, Value-Creating Decisions 

The investment firm further explained that, so far, it had participated in several appealing paths that had the potential to create value while raising capital to fund its merger and acquisition initiatives.

Nonetheless, when it comes to the decision to acquire STS, Eminence has adopted a completely opposite stance, especially in the context of Entain presumably purchasing a company while saying no other takeover bids from different companies at better prices. Eminence mentioned MGM as one of those companies. 

Eminence has also warned about the risk of shareholders losing their confidence in Entain’s capacity to allocate its capital to generate value in the long run. In turn, this could lead to a decision to support the sale of the company to MGM at a lower price than the previous estimations.

In April, Entertain announced that it acquired all of the shares of 365scores. 

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