The tables have turned as rumors suggest that MGM Resorts International (NYSE: MGM) is considering acquiring People Inc. (NASDAQ: PPLI) — the media company that previously sought a takeover of the casino giant and now holds the largest stake in it.
Recent reports from The Wall Street Journal indicate that MGM is exploring the possibility of acquiring People after Barry Diller’s company withdrew its offer to acquire MGM at $48.30 per share.
In response to the news, MGM shares dipped slightly in after-hours trading, while People’s stock surged by 9.13%.
The Potential Motivation Behind the Acquisition
While it may seem unconventional for a casino operator to acquire a media publisher like Food & Wine, Investopedia and Travel + Leisure, MGM’s interest in People may stem from its desire to gain control over the significant equity stake held by the media company.
People currently holds approximately 27% of MGM’s equity, which presents an opportunity for MGM to reduce its outstanding shares by acquiring the media company at a potentially favorable valuation.
As of the latest market close, MGM’s market capitalization stands at $9.52 billion, with People’s stake valued at $2.57 billion. However, considering Diller’s company’s market value of $2.68 billion, it suggests that MGM’s stake may be undervalued in the current stock price.
While the outcome of any potential acquisition remains uncertain, should MGM proceed with acquiring People, it stands to benefit from reducing its float and gaining valuable assets that could be divested to raise additional capital.
Opportunities for Asset Disposition
Should MGM eventually acquire People, it could significantly enhance its earnings per share by reducing its share count and potentially generate substantial cash flow by selling off People’s media assets and non-core businesses.
Earlier this year, MGM announced a corporate restructuring to focus on core assets, including its investment in MGM and over 40 media brands. People’s non-core assets include The Daily Beast, a healthcare staffing firm, and Turo, a peer-to-peer car rental service. Diller’s company also has a minority stake in Turo, valued at $1.1 billion to $1.3 billion in private markets.