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Activist investor Arkhouse is pushing Barry Diller’s People Inc. (NASDAQ: PPLI) to repurchase stock, citing in part the “depressed” share price of MGM Resorts International (NYSE: MGM) – the casino company in which People is the largest shareholder.
In a letter to People Chairman Barry Diller, Arkhouse managing partner Gavriel Kahane outlines a “multiple-step plan to create value for the shareholders” of the media company, including buying back “at least $750 million of stock” and selling its New York headquarters. Arkhouse estimates People’s intrinsic value, or per-share net asset value (NAV), to be $72, well beyond the roughly $40.90 at which the stock currently resides. Based on People’s $48.30 a share offer for MGM, People’s NAV rises to $86 per share when valuing MGM on that basis, according to the activist.
“The wider the discount, the more compelling the math,” wrote Kahane in the letter to Diller. “We believe the intrinsic value, or net asset value (NAV), of People approximates $72 per share based on the current (and in our view, extremely depressed) share price of MGM. Valuing MGM at the previously-proposed acquisition price of $48.30 per share increases estimated NAV to approximately $86 per share. These values represent approximately 72% and 104% upside, respectively, to People’s current stock price.”
People dropped an $18 billion takeover bid of MGM in September citing complexities in getting the deal across the finish line. The media conglomerate owns approximately 26% of the casino operator’s shares.
MGM Acquisition Would’ve Delivered ‘Meaningful Value’
Soon after People halted its acquisition bid of MGM, speculation surfaced that the casino giant could make a run at Diller’s company as a way of executing a de facto buyback of the shares held by the publishing firm.
Arkhouse liked the idea, but it’s off the table, prompting the activist to urge Diller’s company to execute a buyback program.
“We believed the prospective acquisition of People by MGM could have delivered meaningful value to shareholders,” notes Kahane. “In the absence of a transaction, we urge the Board to take immediate, decisive action to address the Company’s egregious undervaluation.”
On MGM’s third-quarter earnings conference late last month, CEO Bill Hornbuckle made clear the company is done with takeover talks in either direction with People. The two companies reached a new voting agreement that caps People’s ownership of MGM equity at 29.9% while paving the way for Diller to sign off on a possible acquisition of MGM by another party in the future.
Other Activists Have Chimed In On People
Arkhouse isn’t the first activist investor to press People to buy back stock. In August, Yakira Capital Management made the same overture, going so far as to tell Diller’s company it should drop its pursuit of MGM.
At that time, Yakira expressed concern that People was biting off more than it could chew with its attempted acquisition of MGM, expressing concern the media company “is not maximizing the use of its assets.”
When it released third-quarter results on Monday, Nov. 2, People said it has 12.5 million shares remaining on its current share repurchase programs. Diller said People’s “conviction in MGM is undiminished.”