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Merger talks in either direction between MGM Resorts International (NYSE: MGM) and People Inc. (NASDAQ: PPLI) are over.
MGM CEO Bill Hornbuckle confirmed as much on the gaming company’s third-quarter earnings conference call late Wednesday, which he led off by addressing the issue of acquisition discussions with Barry Diller’s media company while highlighting the new voting agreement between the two companies unveiled yesterday. That accord caps People’s ownership of MGM equity at 29.9% while providing an avenue for the publishing house to approve a takeover of the casino operator by another party in the future.
“The discussion between MGM and People ends there. Management continues to be focused on the business as clear and consistent,” said Hornbuckle on the call. “And today (Wednesday), you’ll hear that MGM Resorts has a focused operational approach, solid fundamentals and a compelling pipeline.”
People dropped an $18 billion takeover bid of the Excalibur operator last month amid deal complexities.
Don’t Bet on an MGM/People Transaction
Soon after the People takeover offer fell apart, speculation surfaced that MGM could make a run at Diller’s company in an effort to get control of his MGM equity – a move that would essentially amount to a massive share buyback – but that’s unlikely to happen.
“Look, we are done, and I meant that we’re going to refocus on our business, the dialogue back and forth between us and people on, you buy us, we’ll buy you,” said Hornbuckle on the call in response to analyst question. “It was all about trying to unlock the value of that 25% of our shares, we’re done.”
People owns more than 26% of MGM’s shares outstanding, making the media company the largest MGM shareholder.
After the original merger talks collapsed, Diller expressed interest in a future “strategic transaction” with the casino giant, but it’s not clear how such a deal would take shape and it appears as though one isn’t in the cards.
For MGM, an ‘Overhang’ Is Gone
MGM could benefit from putting People deal talks to rest. There was widespread commentary that Diller’s initial offer for the gaming company undervalued it. Likewise, the idea of MGM acquiring People was viewed as a potentially ill fit and possibly complex in its own right.
As Texas Capital analyst David Bain points out, MGM has removed an “overhang” and that may be a good thing moving forward.
“In our view, while certain arbitrage models suggested economic merit in a two-step transaction—theoretically acquiring MGM shares through an acquisition of People Inc. followed by an asset divestiture—the structural opacity, uncertain execution timeline, and shifting transaction premiums may have created a persistent valuation discount for MGM shares,” writes Bain. “In our opinion, terminated discussions and an amended voting pact capped at 29.9%, removes a structural distraction.”