MGM China May Be Source of Allure If MGM Resorts Draws Another Suitor

An amended voting agreement between MGM Resorts International (NYSE: MGM) and Barry Diller’s People Inc. (NASDAQ: PPLI) could make it easier for the casino operator to sell itself to another suitor in the future while potentially making MGM China a point of emphasis in a change of control scenario.

In a new report, CreditSights says MGM China faces some “event risk” if control of the Las Vegas-based parent changes hands. The research firm notes that “while the takeover overhang risk is less acute,” it’s also worth acknowledging that the altered voting agreement with Diller implies MGM is possibly open to selling itself in the future. The US-based parent owns 56% of the operator of MGM Cotai and MGM Macau. It’s possible that the Macau entity could be a source of attraction for a future MGM suitor.

MGM has made clear it’s not conducting talks in either direction regarding a transaction with Diller’s media consortium nor has the Bellagio operator stated that it’s in discussions with another prospective buyer.

Amended Deal Leaves Takeover Door Ajar

One of the primary details in the new MGM/People agreement is that the media conglomerate, which controls approximately 26% of the gaming company’s shares, will pledge those shares “in accordance with the Board’s recommendation in connection with a change of control transaction.”

After disclosing an $18 billion takeover bid for the casino behemoth, Diller made clear he’d oppose third-party bids, but that stance changed by way of the fresh voting agreement. That shift could make it easier for MGM to sell itself in the future.

“The amended voting agreement release between People Inc. and MGM, MGM’s Chairman noted it creates ‘a clear path to maximize value through share repurchases and a change of control (CoC) transaction, if applicable,’ which to us, reads as MGM leaving the door open to another potential acquirer, a possibility that could resurface especially if MGM’s stock price remains depressed,” adds CreditSights.

Where MGM China fits into a hypothetical change of control at MGM isn’t clear, but it’s not a stretch to assume most would-be buyers of the Cosmopolitan operator would want the Macau unit.

Maybe a Relief for MGM China

While a possible sale of the Las Vegas gaming giant may introduce event risk for the Macau entity, no transaction is on the table as of yet and if one comes to pass down the road, it could result in a favorable outcome or more clarity for MGM China.

Soon after Diller made his takeover overture for MGM, speculation surfaced — though it was never confirmed — that he wanted to unload the company’s MGM China stake as well as its interest in MGM Osaka.