The bid was spot on our fair value for Enlabs, and with strong preliminary financial numbers for the fourth quarter, we could argue for an even higher fair value. However, given that several of the largest owners and board members have accepted the bid of SEK 40 per share, we believe this adds uncertainty to the case. The acceptance tells us that these owners see a limited upside from SEK 40, at best.
Nevertheless, the deal should offer substantial synergies, both revenue synergies and cost synergies. On the revenues side, Entain should be able to accelerate both the expansion to new markets and the improvement for Enlabs products. On the cost side, the company should be able to lower admin costs and negotiate better deals with game suppliers. Moreover, Entain´s CEO has already concluded that they want to re-launch Ninja Casino, a process that they might be able to speed up.
Entain highlighted, in its presentation of the public offering on Enlabs, that synergies were not the main reason for the acquisition. Nevertheless, Entain still states that there are significant revenue synergies and likely cost synergies around EUR 1m. We believe this is likely in the low range.
We believe that included in the Entain Group, Enlabs would generate an EBITDA margin of at least a couple of percentage points above our current estimates, just thanks to cost synergies. Moreover, due to an accelerated expansion to new markets and improvement of the products, we expect to see a significantly improved growth rate in the coming years. On top of this, included in the Entain Group, Enlabs high market exposure will also be mitigated, resulting in a lower discount rate.
As a result, we argue that Enlabs would be worth SEK 54-60 per share in the hands of Entain. An increase of SEK 14-20 that logically should be split between Enlabs shareholders and Entain shareholders. This implies a fair bid in the range of SEK 47-50 per share, corresponding to a bid premium of 19-26%.
Hence, there is no surprise that several shareholders are dissatisfied with the bid of SEK 40 per share and that the stock is currently trading above the bid. Furthermore, a group of owners (DI), holding more than 10% of the shares in Enlabs, intends to reject the offer and block the acquisition. As a result, it looks more and more likely that we will see a raise or no deal at all.
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