On Wednesday, MGM Resorts announced that Barry Diller’s People Inc. has rescinded its $18 billion takeover bid, which was initially submitted in June. Both entities expressed confidence in MGM's capacity to thrive as an independent company.
Following the news, People Inc.'s shares remained steady in trading on Thursday, while MGM's stock dropped 11%, bringing it down to approximately $33.50. Diller had proposed to acquire the 73% of MGM shares not already owned by People Inc. at a price of $48.30 per share, which temporarily lifted the stock to that level when the offer was first disclosed. However, a decline in optimism about the deal has led to nearly a 25% depreciation in MGM's shares over the past month. If the acquisition had proceeded, Diller would have taken MGM private, yet it would have operated under People Inc.'s public portfolio.
Diller, 84, praised MGM’s considerable assets amidst a tech-driven market when the bid was made. Despite the offer being rescinded, he indicated that People Inc. remains “open to” future discussions regarding MGM.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 explained. "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."
In response, MGM Chairman Paul Salem emphasized in his statement the board’s enthusiasm for maintaining MGM's independence. He pointed out MGM's strong market position in Las Vegas, its premier regional properties, and the ongoing success of BetMGM as indicators of the company's value to shareholders. Salem also highlighted MGM's influence in Macau and the upcoming MGM Osaka project, which is slated to open in 2030.
Following the announcement, analysts had a restrained reaction. Chad Beynon from Macquarie upheld an "Outperform" rating, while Barry Jonas of Truist maintained a "Buy" rating. Both analysts set a target price of $55 for MGM shares. Beynon noted the logistical challenges in financing such a large deal, suggesting that financing complexities rather than the fundamental value of MGM drove the decision to pull back. He referred to MGM’s implied enterprise value of approximately $5.9 billion as “a striking discount,” given its diverse portfolio of assets.
The current U.S. monetary market is fraught with uncertainty. Inflation persists, and the Federal Reserve raised interest rates for the first time in three years this month, with expectations for at least one more increase before the year concludes. Meanwhile, U.S. Treasury yields have surged, with the 30-year yield reaching levels not seen since 2004.
This issue of financing is crucial in the context of Fertitta Entertainment’s acquisition of Caesars Entertainment, a deal valued at $17.9 billion and comparable to the MGM proposal. Fertitta maintained its $31-per-share offer, partly influenced by the costly nature of its $6.6 billion financing deal.
Jonas indicated that the abandonment of MGM’s takeover was anticipated, considering the decline in MGM shares relative to the bid. He also mentioned that the "regulatory complexity of a company like MGM" may have been too daunting for People Inc., especially given its lack of other gaming interests.
Looking ahead, MGM faces numerous challenges now that the Diller deal has collapsed. The company has performed well in the higher-end market in Las Vegas, reporting $2.2 billion in revenue for Q2 and an adjusted EBITDA of $735 million, yet it faced tough questions from analysts about market conditions. COO Ayesha Molino acknowledged strong performance in the luxury segment but noted ongoing difficulties for budget properties like Luxor and Excalibur.
In regional markets, same-store quarterly revenue reached a record $904 million in Q2. MGM National Harbor in Maryland is expected to benefit from a new venue, the Sphere, expected to open in 2030. However, MGM Springfield in Massachusetts is now under legal scrutiny due to allegations of breaking its host community agreement.
Additionally, MGM sought a commercial license for its Empire City racino in New York last year but withdrew its application. Its digital operations through BetMGM, a joint venture with Entain, are established but may be at a pivotal point, as BetMGM has opted not to enter prediction markets due to concerns over MGM’s casino licenses, while competitors like FanDuel, DraftKings, and Fanatics have embraced this segment.
MGM China has shown reasonable stability in Macau, but the focus remains on the MGM Osaka project, which is currently under construction and is the sole licensee in Japan, though it won’t open until 2030. Japanese officials are also set to open a new round of license bidding next year, potentially heightening future competition.
