Stocks in MGM Resorts International have plummeted in the 24 hours since new broke that the takeover proposal put forward in June by Barry Diller’s People Inc had fallen through. However, industry analysts have described the current valuation of under US$34 per share – down from a high of over US$50 just a few months ago – as a “striking discount” for a company with such quality assets in Las Vegas, regional America and Macau.
In a series of Thursday notes, they also pointed to the company’s US$10 billion MGM Osaka development in Japan, pointing out that investors have so far stubbornly refused to assign it any value whatsoever in MGM’s share price. Macquarie’s Chad Beynon said MGM Osaka should be worth between US$4 to US$8 per share in its own right.
According to Beynon, the collapse of the takeover deal, which had seen People Inc offer US$48.30 per share for every share he doesn’t already own, is likely driven by financing complexity rather than any change in the underlying value of MGM. But with the current share price suggesting MGM Resorts is valued at just 3.7x its estimated 2026 EBITDA, the analyst said he “We view this as a striking discount for a company with premier Las Vegas Strip assets and a best-in class regional portfolio.
“Fundamentally,” he added, “long-term trends remain solid. MGM has reduced the seasonality of its Las Vegas business through groups/conventions, while Macau continues to gain share and regional operations remain among the strongest portfolios in gaming. MGM Digital is also demonstrating improving operating leverage, with profitability becoming increasingly visible.
“We also believe investors continue to assign little value to MGM’s Osaka IR project.”
In a separate note, J.P. Morgan’s Daniel Politzer, Samuel Nielson and Michael Hirsh added, “While it’s still early to get excited on Japan (2030 expected opening), we see this becoming a key part of the thesis in the coming years, and have to imagine the value was a key part of People Inc’s investment thesis and the special committee’s diligence.”
The investment bank added that the collapse of the deal could have been because investors continue to have cold feet given the volatile state of the market and were therefore unwilling to underwrite at an agreed price.
On a positive note, this will open the door for MGM to resume share repurchases once any remaining blackout period expires, with the current US$34 per share valuation representing a unique opportunity to do so.
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