A company led by Barry Diller has made an offer to buy MGM Resorts International, but one Wall Street analyst suggested it remains unclear if the Las Vegas operator would accept the deal.
Diller’s People Inc., previously known as IAC, is making the offer, the company said in a statement released this morning. The move follows news last week of companies controlled by billionaire Tilman Fertitta acquiring Caesars Entertainment.
The New York Times reported it’s “unclear whether a bid by People Inc. for MGM Resorts would put the casino operator in play, drawing in other suitors. But its existing stake could serve as a substantial blocking position against rivals.”
David Katz, an analyst with Jefferies Equities Research raised issues about the offer in a note to investors this morning. Katz said reports this morning that IAC is preparing an $18 billion offer for the remaining 74% of MGM “should be viewed as a positive read-through for MGM and gaming peers. We viewed Caesars’s announcement last week as a needed catalyst for incremental M&A, with additional assets across the group remaining in play.” He believes the 0.7x EBITDAR premium to Caesars’s transaction is warranted, though MGM’s willingness to engage remains uncertain.
“It remains unclear whether MGM will accept the offer, given management’s stated view that the shares are materially undervalued,” Katz said. “Moreover, a potential full takeover of MGM raises questions around the go-forward structure of the 50% BetMGM joint venture with Entain. We continue to believe operators should maintain a clearly defined digital presence. Should competing bidders emerge, we would expect a challenging path, given the voting influence held by Diller.”
People Inc., which trades on NASDAQ, said it has submitted a non-binding proposal to the MGM Board of Directors to acquire all outstanding shares that People Inc. does not already own for $48.30 per share in cash.
This proposal represents a premium of 24.1% to the volume-weighted average price of MGM common stock for the 30 trading days ending on May 29, a more than 30% premium to the stock’s volume-weighted average price for the 90 trading days ending on the same date, and a 10.6% premium to the most recent closing price, the company announced.
People Inc. currently owns 26.1% of the outstanding common stock of MGM.
“We began investing in MGM nearly six years ago, because we believed it represented a rare kind of business: one with real-world assets that AI cannot easily replicate or disintermediate and exceptional digital growth opportunities. That conviction has only strengthened over time,” said Diller, chairman and senior executive of People Inc. “We continue to believe the market materially undervalues the power and durability of MGM’s assets. We believe MGM’s management team is superb, and that there is a compelling opportunity to support MGM’s next phase of growth and help unlock its full value.”
Diller said in his statement that he believes the transaction would deliver significant benefits to the shareholders of both companies. MGM shareholders would be given the opportunity to de-risk their investment and realize immediate attractive value in cash for their shares.
“We are confident in our ability to execute on a transaction promptly with engagement from the MGM Board of Directors,” Diller said.
The company said it expects to fund any transaction with a combination of existing cash on hand at People Inc. and MGM and additional debt and equity funding commitments. People Inc. expects that it will 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 Inc. would control the MGM business.
People submitted a letter to the MGM Board of Directors setting forth the terms of the proposal.
“People Incorporated began investing in MGM in 2020, based on our view that it represents a durable growth business not easily displaced by technology,” the letter said. “We believe that MGM’s assets and businesses are not currently realizing their full potential in the public markets and that it will be difficult to correct this situation in MGM’s current form as a public company. Accordingly, we would like to work with MGM to agree on a transaction in which our company and other investors provide MGM’s public shareholders with an attractive premium in cash for their interest in MGM, and MGM would become a private company. People Incorporated is accordingly submitting a non-binding proposal to acquire all of the outstanding shares of common stock of MGM not already owned by IAC. …
“People Incorporated will be a good steward for MGM’s assets, given our large stake in the business today and our deep familiarity with the business,” the letter said. “MGM shareholders will receive attractive value for their shares, fully de-risking their investment at a compelling return.
“Our proposal is subject to customary conditions, including the negotiation and execution of a mutually satisfactory binding agreement,” the letter said. “Given our substantial knowledge of MGM, we expect that we can complete our confirmatory due diligence quickly, in parallel with negotiation of the definitive transaction agreements and finalizing required financing, and reach a prompt signing.
“We can deliver a highly certain transaction,” the letter said. “The transaction would not be subject to any financing condition, and we are confident in our ability to fund the purchase price while maintaining prudent leverage, based on existing cash on hand at People Incorporated and MGM and preliminary conversations with other potential equity investors and financing sources. The transaction would be subject to limited competition approvals and applicable gaming regulatory approvals, and we would work closely with MGM in obtaining those approvals.
“We expect that People Incorporated would own just over a majority of the post-closing equity in MGM, and would have control over the business, with minority ownership by other investors (who may include some current MGM shareholders),” the letter said. “We expect MGM’s current management team would continue to lead the business and would seek to discuss suitable terms with the relevant individuals at the appropriate point in the process.
“We fully recognize that the MGM board will need to consider this transaction under the appropriate Delaware procedures, and of course I will recuse myself from any deliberations of the MGM Board regarding this transaction or any alternative,” the letter said. “We wish to confirm to you that People Incorporated has no intention to sell our existing ownership stake in MGM, or to pursue or vote in favor of any merger or other similar extraordinary transaction that would result in a change in control to another party or dilute in any meaningful respect our economic and voting interest in MGM.
“This letter is a non-binding expression of interest only, and People Incorporated reserves the right to withdraw or modify the proposal at any time, or to terminate discussions and negotiations at any time in our sole discretion,” the letter said. “No legal obligation with respect to our proposal or any other matter will arise unless and until we have executed definitive transaction documentation with MGM. People Incorporated intends to promptly file an amended Schedule 13D reflecting the submission of this proposal.
“We are prepared to work expeditiously to agree to a definitive transaction,” the letter concluded and was signed by Diller.
The New York Times reported that Diller has been enamored of travel and leisure and MGM for years, by first building a stake during the pandemic lockdowns in 2020. He bought Expedia after the Sept. 11, 2001, attacks and split it off.
“Shares in MGM Resorts have climbed over 19 percent over the year so far, as analysts have said the company could benefit from a comeback by Las Vegas,” the Times reported.
Katz said following Fertitta’s announced acquisition of Caesars last week, Jefferies’s view remains that the transaction could act as a catalyst for incremental deal activity across the group, with regional assets at Churchill Downs, Monarch, Boyd Gaming, and Penn Entertainment potentially emerging as medium-term candidates.
Barry Jonas, an analyst with Truist Securities, weighed in on the offer, discussing that Truist upgraded MGM shares last week based on their view that the Strip perceptions are improving along with inflecting room rates, leaving MGM in a favorable fundamental and value position.
“IAC has been an active shareholder and board member for many years now, which makes us wonder whether this bid has to do with changing anything fundamental or just taking advantage of valuation dislocation,” Jonas said. “MGM as a part of IAC could potentially operate better, under less short-term-focused investor scrutiny. Still, we wonder how potential less transparency and more limited disclosures would be viewed overall.”
From a valuation perspective, the $48.30 IAC offer based on their 2027 earnings implies a 5.5 times (EV/EBITDAR) acquisition multiple compared to the recently announced 6.6 times Caesars transaction, Jonas said. At 6.6 times, MGM’s valuation would be $69 a share based on their 2027 earnings.
“That said, we think the market understands that MGM is a fairly complex business with several moving parts, which could make it difficult for a true apples-to-apples comparison,” Jonas said. “We keep our $55 price target the same for now, though the market is currently implying potential upside to IAC’s $48.30 takeout price.”
Overall, Jonas said they view the announcement with “cautious optimism for IAC, as it would bring one of its core assets in MGM fully under the People Inc. umbrella, and if successful, could lead to a meaningful value unlock within one of its two biggest assets, with People Inc. being the other. The move would also eliminate one of the most common pushbacks we currently hear when speaking to investors on People’s ownership of MGM, which is why own MGM through People when I can invest directly?”
While IAC’s current net leverage is low, this transaction at the current proposed price would imply that IAC would need to fund about $3B to reach its target 50.1% ownership, Jonas said.
“It’s important to note that People Inc. has been on the hunt for assets to acquire for the last several years — mainly internet-oriented, in our view — but has not been successful in finding attractive enough candidates,” Jonas said. “In the meantime, the company has been offloading non-strategic assets to streamline its portfolio, while enjoying a strong balance sheet and FCF generation. That said, this move would mark a pivot away from the usual internet-oriented companies that People has historically incubated within its portfolio and may introduce additional operating risks. Net-net, depending on the final price and structure of the deal, this could be a positive transaction that unlocks value across both segments for People Inc. We believe Mr. Diller’s track record in creating shareholder value through unorthodox M&A should give investors some confidence in the move if it were to go through.”
MGM put out a statement confirming that it received an offer today from People Inc. to acquire all of the outstanding shares of the company that it does not already own for $48.30 per share in cash.
“The company’s Board of Directors, in consultation with its financial and legal advisors, will carefully review and consider the proposal to determine the course of action that it believes is in the best interests of the company and all of its shareholders,” the statement said. “MGM Resorts shareholders do not need to take any action at this time.
“The company cannot provide assurances that such a proposal or any subsequent proposal will result in an agreement or a transaction being reached or, if so, as to the timing, price or other terms and conditions of any such agreement,” the statement said. “The company remains focused on advancing its position as the world’s premier gaming entertainment company.”
