A proposed take-private acquisition of United States-based casino operator MGM Resorts International by its largest shareholder, U.S. conglomerate People Inc, could have significant implications for MGM China Holdings Ltd and the parent’s long-term investment in Japan, according to investment analysts.
People Inc, formerly known as IAC Inc, has made a non-binding all-cash offer of US$48.30 per share for MGM Resorts. The offer is said to value the casino group at more than US$18 billion, including circa US$6.40 billion in net debt.
The proposal would see People Inc retain a controlling 50.1-percent stake in the business following completion, according to a Monday press release.
While analysts broadly view the bid as strategically credible, attention is increasingly turning to MGM Resorts’ international assets, particularly its Macau unit and the company’s casino resort development in Osaka, Japan.
Seaport Research Partners said MGM China, 56-percent owned by MGM Resorts, could become one of the most important pieces in any post-acquisition restructuring. The brokerage raised the price target for MGM China, citing the Macau operator’s strong market-share performance in the local market and what it described as an “undemanding” valuation.
Seaport’s analyst Vitaly Umansky suggested in a Tuesday memo that any future sale of the Macau business could unlock additional value for MGM Resorts’ shareholders.
The research house suggested a People Inc-controlled MGM Resorts might ultimately regard Macau and Japan as non-core assets if management chooses to place greater emphasis on digital gaming operations. Under that scenario, proceeds from potential asset sales could be redirected toward expanding MGM Resorts’ online gaming footprint or increasing exposure to BetMGM.
CBRE Equity Research observed in a Tuesday note that MGM Resorts’ stake in the Macau unit “is currently valued at US$3.3 billion,” and that MGM China “contributes an estimated US$316 million of annual cash flow between dividends (US$201 million) and management fees (US$11.5 million)”.
“Over time, People [Inc] could look to divest all or part of the MGM China stake to help finance its proposed acquisition, fund the Osaka equity commitment, or return equity to its minority partners,” wrote analysts John DeCree and Max Marsh.
Possible outcomes
Seaport’s Mr Umansky identified several possible outcomes. One scenario would involve MGM Resorts selling its stake in MGM China while the Hong Kong-listed company remains publicly traded. MGM China chairperson, Pansy Ho Chiu King, who already owns more than 24 percent of MGM China, was identified as a potential buyer, possibly alongside financial partners.
Alternative buyers could include existing Macau concessionaires. The Seaport analyst stated that Galaxy Entertainment Group Ltd and Sands China Ltd would have the financial resources to pursue such a transaction, although regulatory considerations could affect the likelihood of approval by local authorities.
Japan represents another potentially significant strategic consideration. MGM Resorts owns a 42.5-percent stake in the JPY1.51-trillion (US$9.49-billion currently) MGM Osaka project, due to open in 2030.
Mr Umansky said a future owner could seek to dispose of that interest, although any transfer would depend on contractual arrangements and government approval. Potential replacement investors, according to the brokerage, could include Las Vegas Sands Corp, the parent of Sands China; Galaxy Entertainment; Hard Rock International; Wynn Resorts Ltd; the Genting Group; or Melco Resorts & Entertainment Ltd.
CBRE noted in Tuesday’s memo that MGM Resorts still faces approximately US$2.3 billion of remaining equity commitments to the Osaka development over the next several years, making Japan a key consideration in any acquisition financing plan.
Analysts also highlighted the unusual structure outlined in the proposal. People Inc indicated it expects to own just over 50.1 percent of MGM Resorts if the deal is completed, with the remaining equity held by rollover investors and other partners.
CBRE estimates that could create a roughly US$3.3 billion opportunity for minority investors to participate in the privatised company, alongside a combination of new debt financing and cash resources.
Such a structure could give the new owners flexibility to monetise selected international assets while retaining exposure to MGM Resorts’ core U.S. casino operations and digital gaming businesses, the analysts stated.
