MGM and People can't quit each other

You know that couple that breaks up, swears it’s over, and somehow ends up back together the very next day? Meet MGM Resorts and People Inc.

Yesterday, Barry Diller’s People withdrew its proposal to buy MGM Resorts and take the casino operator private. “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,” Diller said in a press release. The deal also would have required People to take on a sizable amount of new debt.

But MGM wasn’t ready to move on. Not even a day later, the casino giant is considering a potential bid to buy People instead, according to the Wall Street Journal.

No price or formal offer has been announced yet, so this reconciliation could still fizzle out. Still, it pays to be in demand: People shares rose 11.33% this afternoon, while MGM slid 3.31%.

A strange match

It’s an odd turn of events, but one that actually makes sense if you dive in.

MGM is worth roughly three times People’s market value, and had about $2.55 billion in cash as of June, giving it a much easier path to financing a deal. More importantly, People is already MGM’s largest shareholder, with a roughly 27% stake. Buying People would therefore let MGM effectively bring a massive block of its own stock back under its roof, while also acquiring the rest of People’s media business.

Diller started buying MGM in 2020 because he thought it was undervalued, and later called the pairing of digital media with MGM’s physical assets “a perfect hedge in a world that is changing so unpredictively fast.” Publishing can be disrupted by AI and changes to online search, but who wants to play blackjack with ChatGPT when you can lose money on a fluorescent Vegas casino floor?

Wall Street weighs in

Analysts struck a cautious tone today as Wall Street reassessed MGM without a takeover premium:

• Mizuho: kept its Outperform rating but cut its target from $60 to $55. Analysts called the withdrawal “not terribly surprising,” saying People’s $48.30 offer didn’t appear high enough for MGM’s board.
• BofA: resumed coverage at Neutral with a $40 target, pointing to near-term pressure across Las Vegas, Macau, and digital operations.
• Susquehanna: kept its Positive rating but cut its target from $55 to $46.

For now, things are still complicated between the toxic pair. Then again, sometimes the messiest courtships make for fairytale endings.—SY