MGM Resorts International could divest its 56% stake in MGM China and 40% interest in the MGM Osaka development in Japan under the ownership of Barry Diller’s People Inc, according to commentary from Seaport Research Partners.
However, questions remain over whether the MGM Resorts board will seriously consider the bid submitted by People Inc this week, which values the company at US$18 billion and is described by Seaport as low.
As reported by Inside Asian Gaming, People Inc, which currently holds 26.1% of MGM’s common stock, has submitted a non-binding proposal to acquire all outstanding shares of MGM Resorts International that it does not already own for US$48.30 per share in cash. Should the offer be accepted, People Inc stated that it would own just over 50.1% of the equity of the company, with other investors – which may include existing shareholders of MGM – holding minority interests. People Incorporated would control the MGM business and MGM would become a private company.
Analysts have broadly agreed that the current bid appears too low and, as Seaport’s Vitaly Umansky said in a Tuesday note, “may not be acceptable to the independent board members or MGM shareholders” – in part because it fails to incorporate the potential long-term value of both MGM China and MGM’s Japan development.
“MGM China becomes an interesting piece in the puzzle that is MGM,” Umansky observed. “It has significantly outperformed the Macau market over the last few years and retained more market share over the past few quarters than we had expected.
“With valuation remaining very undemanding – and what should be a strong Q2 for MGM China – we upgrade MGM China to Buy from Neutral.
“Should an MGM deal be consummated, we believe there is some chance that People Inc may look to divest ownership in MGM China (and potentially in MGM Japan as well).”
On the reasoning behind People Inc’s bid to acquire control of MGM Resorts, Umansky added, “Our feeling is that People Inc, while serious about buying MGM, is frustrated with MGM’s … share performance and is looking to highlight value of MGM to the market. That is not to say that People Inc’s bid is not genuine. We believe it is, and People Inc most certainly has every interest in getting a deal done at US$48.30 if it can do so.”
MGM Resorts shares rallied by 16% to US$50.68 – 5% above the proposed acquisition price – following news of People Inc’s offer breaking while MGM China shares were up almost 8% to HK$11.83.
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