Stocks of MGM Resorts International (NYSE: MGM) are currently trading at around $42.80, about 11% lower than the $48.30 per share takeover proposed by Barry Diller’s People Inc. (NASDAQ: IAC) three months ago. Despite this, an analyst believes that there is value in the casino at these price levels.
In a recent report to clients, CBRE Equity Research analyst John DeCree points out that despite MGM trading below the takeover price, there are positive trends on the Las Vegas Strip, where MGM is a key player, supporting the valuation of the shares.
“MGM valuation currently looks very attractive on its own, especially with some signs of stability in visitation and gaming revenue on the Strip in recent months,” notes the analyst.
It has been approximately three months since People made an $18 billion offer to acquire MGM. During this time, there has been minimal public discussion regarding the potential transaction, but MGM has established a special committee to assess the acquisition proposal.
Diller’s Continued Support of MGM Stock
Diller’s media company is the largest shareholder of MGM, owning about 26% of the outstanding shares. During People’s second-quarter earnings call earlier this month, Diller mentioned that discussions with MGM are in progress, emphasizing a long-term belief in MGM’s management and business.
“But what isn’t speculative is our very long-term belief in the management and in the business of MGM. And we’re going to increase our ownership in MGM either in one swoop or slowly and either is really just fine with us,” stated Diller.
This commitment could stabilize the stock, which has experienced a 7% decline in the past month.
“This should put a solid bid on MGM shares,” adds DeCree.
Diller Positioned for Potential MGM Acquisition
On Wall Street, there is a sentiment that Diller’s offer is undervalued, especially when comparing the multiples with the Fertitta Entertainment Inc. (FEI) bid for Caesars Entertainment (NASDAQ: CZR), suggesting that MGM’s worth could be in the range of $55 to $60 per share.
Despite possessing attractive assets, there is a consensus in the investment community that the probability of another bidder surpassing Diller’s offer is low.
Speculation suggests that private equity firms are the likely contenders for any potential bids, but they are more inclined to hold MGM stock rather than submit their own offers.