MGM Resorts announced on Wednesday that its largest shareholder, Barry Diller's People Inc., has rescinded an $18 billion takeover bid made back in June. Both MGM and People Inc. expressed confidence in the company's ability to thrive independently.
Following the news, MGM's stock fell by 11% to approximately $33.50, while shares of People Inc. remained relatively unchanged. Diller's proposal was to acquire the remaining 73% of MGM shares that People Inc. did not already own at $48.30 per share. Initially, this offer pushed MGM’s stock price up to around that figure, but it has since dropped nearly 25% in the past month. Although Diller intended to take MGM private, the company would have continued to be part of People’s public portfolio.
Diller, 84, once praised MGM’s tangible assets amid a tech-driven industry landscape. Despite not reaching an agreement, he indicated that People Inc. is still open to future discussions regarding MGM.
"There are lots of ingredients that go into a proposal of this kind on its way to completion," Diller stated. "We didn’t feel the mix was coming together in the way we had hoped and have decided not to pursue taking the company private at this time."
MGM's Chairman, Paul Salem, conveyed his enthusiasm for MGM remaining an independent entity. He emphasized the company’s stronghold in Las Vegas, valuable regional properties, and the success of BetMGM. Salem highlighted MGM’s competitive presence in Macau and its MGM Osaka project, which is scheduled to open in 2030.
Reactions from analysts have been largely unaffected by the news of the bid's withdrawal. Chad Beynon from Macquarie maintained an "Outperform" rating, while Barry Jonas of Truist kept a "Buy" rating, with both analysts setting a price target of $55.
Beynon noted the financing challenges associated with such a massive deal, arguing that the situation arose more from financial complications than any indication of MGM’s inherent value. He pointed out that MGM’s current implied enterprise value of approximately $5.9 billion seems significantly low compared to its diverse portfolio of assets.
The current climate of the US money market is becoming increasingly challenging, with persistent high inflation and the Federal Reserve raising interest rates for the first time in three years. This month also saw the 30-Year Treasury yield reach its highest level since 2004, according to CNBC.
Financing costs play a crucial role in Fertitta Entertainment’s acquisition of Caesars Entertainment, valued at $17.9 billion, which bears similarities to MGM's situation. Fertitta has maintained its $31-per-share offer partly due to financing challenges, as executives signaled in July their hopes for a more favorable lending environment, which has not yet emerged.
Jonas remarked that the collapse of the MGM deal was not unexpected considering the drop in MGM's share prices versus the proposal price. He also pointed out the regulatory challenges associated with a company like MGM, which might have been too complex for People Inc. to manage given its singular focus in gaming.
Looking to the future, MGM faces several strategic elements to address without Diller's involvement. While the company has performed well in the luxury market, its budget properties have struggled. MGM reported $2.2 billion in revenue from Las Vegas in Q2, with adjusted EBITDA of $735 million, but faced questions from analysts regarding the market’s dynamics.
MGM's COO, Ayesha Molino, mentioned the strong performance of MGM in the luxury segment, although budget properties like Luxor and Excalibur continue to face challenges.
Quarterly revenue for regional locations hit a record $904 million in Q2. MGM's National Harbor in Maryland is expected to benefit from a new Sphere venue that will not open until 2030. MGM Springfield in Massachusetts faces legal scrutiny from the city over alleged violations of a host community agreement. Last year, MGM also withdrew its application for a full commercial license at Empire City racino in New York.
MGM's digital operations, primarily through the BetMGM joint venture with Entain, are well-established, yet they may be approaching a pivotal moment. BetMGM has avoided prediction markets due to concerns over MGM's casino licenses, while competitors like FanDuel and DraftKings have embraced them.
In Asia, MGM China has maintained stability in Macau, though significant focus remains on MGM Osaka, the only licensed project in Japan, which is still four years from completion. Japanese authorities have confirmed another round of license bids set for next year, potentially intensifying competition.
