MGM Resorts International (NYSE: MGM), which is already facing a takeover offer from Barry Diller’s People Inc. (NASDAQ: PPLI) valued at $18 billion, might attract additional interest and potential bids from other buyers, according to industry analysts.
MGM, known for its Bellagio resort, will announce its second-quarter earnings after U.S. market closure tomorrow. Should the results be favorable, this could warrant a competitive bid exceeding the $48.30 per share that People proposed on June 1, according to Susquehanna analyst Joseph Stauff.
“We believe there’s a significant likelihood of a superior bid, hence our ongoing Positive rating,” Stauff noted in a client report.
Some market analysts argue that Diller’s current offer undervalues MGM, estimating its worth between $55 to $60 per share or possibly higher. However, they acknowledge that the potential for a rival bid may be restricted, as People holds 26.1% of MGM’s outstanding shares and is unlikely to endorse any competing offer that doesn’t originate from them. Nearly two months have passed since Diller first disclosed his acquisition proposal, and MGM has remained silent apart from confirming receipt of the bid, although it has initiated a special committee for assessment.
Revealing “Trapped Value” at MGM
Stauff suggests other bidders might seek to unlock “trapped value” within MGM, which could come from assets like BetMGM and MGM China. The analyst also identifies potential mergers and acquisitions as appealing factors for any interested third parties.
Stauff further emphasized the Las Vegas Strip’s developing reputation as a “sports first” hub as a reason for the likelihood of a competing takeover offer. Las Vegas is already home to franchises from two major North American sports leagues, with Major League Baseball set to join by 2028. The NBA is also looking to add a team by the 2028-29 season.
To reveal value at MGM, divesting MGM China could be beneficial. MGM controls 56% of the Macau operator, and there have been discussions that Diller may consider selling this division, as well as MGM’s Japan operations, if he successfully acquires the company.
BetMGM operates under a unique structure. Both Entain Plc (OTC: GMVHY) and MGM hold a 50% stake in BetMGM, meaning that any strategy to unlock value must involve cooperation from Entain.
About BetMGM…
BetMGM recently disclosed its second-quarter figures, reporting a 3% year-over-year increase in net revenue to $711 million, spurred by an 8% rise in iGaming revenue. However, it cautioned that full-year projections will likely fall at the lower end of its previously stated guidance of $2.9 billion to $3.1 billion in sales and EBITDA between $300 million to $350 million.
Moreover, BetMGM has pushed back its target for achieving $500 million in EBITDA, citing challenges from the evolving market conditions and the complexities of regulatory frameworks impacting prediction markets. This benchmark was initially expected to be reached by 2027.
It remains to be seen if any of this might encourage Entain to consider selling its stake in BetMGM, but Jefferies analyst James Wheatcroft pointed out that with a valuation of 7.1x enterprise value/EBITDA, “we see no value for BetMGM reflected in Entain’s pricing.”