MGM Resorts announced on Wednesday that an $18 billion acquisition proposal from its largest shareholder, Barry Diller's People Inc., has been withdrawn after being put forth in June. Both MGM and People Inc. expressed confidence in MGM's prospects as an independent entity.
In trading on Thursday, shares of People Inc. remained largely stable while MGM's stock decreased by 11%, settling around $33.50. Diller had offered to purchase the 73% of MGM's shares not already owned by People Inc. for $48.30 per share. When the bid was unveiled, MGM's stock surged to that price, but it has since fallen almost 25% over the last month. Had the deal proceeded, MGM would have gone private under the umbrella of People Inc.'s public portfolio.
At the time of the offer, Diller emphasized MGM's valuable physical assets in a market increasingly influenced by technological advancements and AI. Although the acquisition will not materialize, Diller conveyed that People Inc. remains "open to" future conversations.
"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."
Contrastingly, MGM's Chairman Paul Salem expressed enthusiasm about the company’s future as an independent operator. He asserted that MGM's leadership in Las Vegas, its top-tier regional properties, and the momentum of BetMGM highlight the value it provides to shareholders. Salem also pointed to MGM's strength in Macau and the upcoming MGM Osaka, which is scheduled to open in 2030.
Reactions from analysts were generally measured following the announcement. Chad Beynon of Macquarie maintained an "Outperform" rating, while Barry Jonas of Truist upheld a "Buy" rating, with both setting a target price of $55. Beynon noted the financial challenges involved in finalizing the substantial deal and commented that the decision was influenced by financing complexities rather than a shift in MGM's underlying value. He described MGM's implied enterprise value of approximately $5.9 billion as "a striking discount" considering its diverse assets.
Beynon’s observations align with the increasingly complicated US financial market, where inflation persists and the Federal Reserve raised interest rates for the first time in three years earlier this month, with expectations of additional hikes before the year's end. On Thursday, the 30-Year US Treasury yield reached its highest level since 2004, according to CNBC.
Such financing concerns also played a role in Fertitta Entertainment's bid for Caesars Entertainment, valued at $17.9 billion, which paralleled the proposed MGM transaction. Fertitta stood firm on its $31-per-share bid partly due to the financing conditions surrounding its $6.6 billion package. Company officials stated in July that they were awaiting a more favorable lending environment, which has yet to be realized.
Jonas, meanwhile, indicated that the collapse of the deal was not unexpected given MGM's share performance relative to the proposed price. He also highlighted the potential regulatory hurdles MGM might pose for People Inc. considering it lacks other gaming interests.
Looking ahead, MGM faces several factors as it continues without Diller. In Las Vegas, the company has found success at the luxury end, but its budget offerings have faltered. MGM reported $2.2 billion in revenue for Q2 in Las Vegas, with an adjusted EBITDA of $735 million. However, executives faced numerous questions from analysts regarding the market's challenges.
COO Ayesha Molino remarked that there is notable strength in MGM's luxury segment, although properties like Luxor and Excalibur are encountering difficulties.
On the regional front, same-store quarterly revenue experienced a record high of $904 million in Q2. MGM National Harbor in Maryland is anticipated to benefit from a Sphere venue under construction nearby, slated to open in 2030. However, MGM Springfield in Massachusetts is under increased scrutiny following a lawsuit from the city over alleged violations of the host community agreement. Last year, MGM also withdrew its application for a commercial license at Empire City racino in New York after being in contention.
MGM's digital operations through its BetMGM joint venture with Entain are well-established but may face pivotal decisions ahead. BetMGM has opted against entering prediction markets due to concerns regarding MGM's casino licenses, unlike competitors such as FanDuel, DraftKings, and Fanatics, which have fully engaged in that arena.
In Asia, MGM China has shown stability in Macau, but much of the focus remains on MGM Osaka, which is the only entity licensed in Japan. The project is still four years away from opening, and Japanese authorities have confirmed that another round of license bids will begin next year, potentially intensifying competition in the future.
