MGM Resorts International (NYSE: MGM) shares experienced a notable uptick in after-hours trading on Friday, fueled by reports indicating that the casino enterprise is engaged in advanced discussions with Barry Diller’s People Inc. (NASDAQ: PPLI) regarding a proposed acquisition he introduced last month.
On June 1, Diller, who holds 26% of MGM shares, proposed a takeover initiative worth $18 billion, which values the operator of the Cosmopolitan at $48.30 per share—around 11% higher than the stock’s closing price just prior to the public announcement of the offer.
Since that time, MGM has remained silent on the proposal. However, citing unnamed sources familiar with the situation, The Wall Street Journal reported late Friday that negotiations between the casino giant and Diller’s firm have progressed in recent weeks. Furthermore, it was noted that MGM has established a special committee to assess the offer and engaged with undisclosed advisors to review the proposal.
Diller’s media organization, which is MGM’s largest shareholder, has been a stakeholder in the gaming company for six years. The Journal mentions that JPMorgan is one of the financial institutions advising him on the transaction, having pledged support for financing. MGM has not provided any public comment on the proposal except to confirm its receipt.
MGM and Diller Acknowledge Company is ‘Undervalued’
In light of Tilman Fertitta’s $17.6 billion proposal for Caesars Entertainment (NASDAQ: CZR), some analysts have speculated that the bid indicates MGM’s worth should be between $55 to $60 per share, suggesting Diller’s offering for the Aria operator may be insufficient.
Certain analysts have suggested that Diller’s proposition is below fair value, arguing that MGM could be valued significantly above $60 per share. MGM’s executives seem to concur that the wider market fails to accurately price the company. In remarks made last month at the NYU International Hospitality Investment Forum, CFO Jonathan Halkyard stated that MGM is undervalued by the overall investment community.
Diller shares this perspective. In his June announcement of People Inc.’s proposal for MGM, he remarked that “the market materially undervalues the strength and resilience of MGM’s assets.” It remains uncertain whether this viewpoint will lead him to increase his initial offer.
In after-hours trading on Friday, MGM closed at $48.40, which may indicate that traders are anticipating a deal near Diller’s original offer. However, there is no guarantee that an agreement will be reached by the parties involved.
Difficult to Envision Other Bidders for MGM
While MGM’s stance that the market undervalues its stock may be correct, analysts believe a competitive bid against Diller’s offer is unlikely.
In his June announcement, Diller clarified that People Inc. does not intend to liquidate its MGM stake and will not support any alternate change of control proposals. Earlier, Diller and MGM had established an agreement limiting the investor’s voting rights to extraordinary circumstances, which a competing takeover offer likely qualifies as.
An interesting note: News regarding the progressing negotiations between Diller and MGM comes just as Caesars’ go-shop period concludes today. At the time of writing, rumored bidder Carl Icahn has yet to unveil a competing proposal for Fertitta’s control of Caesars.