MGM Resorts International has formed a dedicated board committee and enlisted advisors to assess the takeover bid from media tycoon Barry Diller, as negotiations with his company, People Inc., intensify, according to a report by The Wall Street Journal citing sources close to the situation.
The discussions between MGM and Diller's team have gained momentum this month, although an agreement remains uncertain. MGM has yet to publicly address the proposal, believing that the current offer undervalues the company.
Diller's offer, made on June 1, stands at $48.30 per share for the portion of MGM not already owned by People Inc., which holds a 26.1% stake in the hotel and casino operator. This proposal estimates MGM's equity at approximately $12.4 billion, with the total company valuation exceeding $18 billion when factoring in debt.
Financial advisors, including those from JPMorgan Chase, are reportedly aiding Diller in securing funding for the potential acquisition. Upon the offer's announcement, Diller expressed confidence that People Inc. could finance the deal using its current cash reserves and initial discussions with potential equity investors and other funding sources.
“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,” Diller remarked at the time.
Recently, MGM shares have traded slightly below the proposed acquisition price, suggesting that investors are optimistic about the likelihood of a deal being finalized.
Following the offer, MGM's Chief Financial Officer Jonathan Halkyard stated at the NYU International Hospitality Investment Forum that the valuation of the company's domestic operations was “at a very low multiple,” noting that this has been the case for some time.
Halkyard also mentioned that investors sometimes fail to accurately assess the value of the company’s various segments, and he found Diller’s evaluation of MGM to be “gratifying.” He pointed out that the diverse nature of MGM’s business operations complicates its overall valuation, which includes resorts in Las Vegas, international markets, table game revenue, and online betting activities through BetMGM.
However, MGM and other casino operators face challenges from the rise of prediction-market platforms, which enable consumers to bet on various outcomes, including sports and political events.
At the same time, Las Vegas has seen a decline in lower- and middle-income families visiting, becoming increasingly dependent on spending from a smaller group of wealthy tourists. In response, casino companies are implementing discounts and incentives to draw customers to their venues.
Diller’s proposal emerged shortly after Caesars Entertainment agreed in late May to be acquired by Tilman Fertitta, owner of Golden Nugget. Fertitta Entertainment is purchasing Caesars for $5.7 billion while also assuming nearly $12 billion in Caesars' debt, bringing the total deal value to around $17.6 billion.