Activist hedge funds heighten pressure on Entain amidst share price concerns

Ladbrokes’ parent company Entain faces intensifying investor unrest as two additional US-based activist hedge funds, Sachem Head Capital Management and Dendur Capital, voice concerns over the gambling group’s languishing share price and the ability of CEO Jette Nygaard-Andersen to revive the FTSE 100 company’s performance.

This move follows the footsteps of Eminence Capital, another Wall Street activist that articulated its concerns in June, escalating the pressure on Entain and its chief executive. New York-based Sachem Head and Dendur have built positions in the company, people familiar with the situation told the Financial Times.

The concerns largely stem from a series of setbacks, including a slump in sales within Entain’s core markets, particularly the UK, where stringent regulatory measures have constrained the online betting industry. Additionally, costly business transactions and operational lapses have aggravated these worries.

Entain witnessed a paradigm shift in its financial trajectory this year, facing a substantial decline of more than a third in its share price, settling at a three-year low. In stark contrast, rival entity Flutter Entertainment’s shares have surged by 13% in the same period, exacerbating Entain’s market valuation woes.

Nygaard-Andersen, appointed as CEO in January 2021 amidst her predecessor’s sudden departure during a takeover bid, has drawn sharp criticism from shareholders and activist investors. An insider called Entain’s predicament a result of “self-inflicted wounds,” leading to shareholders’ diminishing trust in Nygaard-Andersen’s leadership.

In response to mounting pressure, Entain announced this month plans to onboard four new non-executive directors to fill vacant positions on its board. The activists, however, are advocating for the inclusion of Eminence’s founder, Ricky Sandler, on the board and have emphasized their desire to participate in the appointment process for the remaining vacant seats, as per people financial with the matter.

Entain, in a statement to the Financial Times, pledged its commitment to engaging constructively with shareholders’ concerns. The company outlined a comprehensive strategy aimed at organic expansion, margin improvement, and market share growth in the thriving US betting sector.

Amid the backlash, Entain’s joint venture with MGM in the US, BetMGM, stands as a bright spot in its portfolio. BetMGM ranks as the third most popular betting app in the lucrative US online market. Despite lingering hopes among some shareholders for a potential bid from MGM, the company’s CEO, Bill Hornbuckle, recently downplayed the likelihood of an imminent second bid.

The current scenario also coincides with ongoing negotiations concerning an estimated $733.7 million (£585 million) settlement with UK authorities, linked to historic bribery charges involving a former Turkish subsidiary. 

Entain’s chair, Barry Gibson, has urged investor patience to prevent hindrances in these crucial negotiations. Adding further strain, two London-based hedge funds, Perbak Capital Partners and Ilex Capital Partners, have taken substantial short positions against Entain, each worth more than $31.3 million (£25 million) in recent months, according to public filings.