MGM Discussing Diller Takeover Offer, Reportedly Formed Special Committee

Shares of MGM Resorts International (NYSE: MGM) rallied in after-hours trading Friday amid reports that the casino operator is in progressing talks with Barry Diller’s People Inc. (NASDAQ: PPLI) regarding an acquisition he pitched last month.

On June 1, Diller, who controls 26% of MGM shares, unveiled a takeover bid of $18 billion, valuing the Cosmopolitan operator at $48.30 a share, or nearly 11% above where the stock closed the day before the offer was made public.

Since then, MGM has been mum on the offer, but citing unidentified sources close to the matter, The Wall Street Journal reported late Friday that talks between the casino giant and the suitor have advanced in recent weeks. The publication also reports that MGM formed a special committee to evaluate the offer and has engaged with unidentified advisors to examine the bid.

Diller’s media company, which is MGM’s largest shareholder, has been an investor of the gaming company for six years. The Journal reports JPMorgan is among the banks advising him on the deal and has committed to financing for the transaction. MGM hasn’t publicly commented on the offer aside from confirming receiving it.

MGM, Diller Agree the Company Is ‘Mispriced’

In the wake of Tilman Fertitta’s $17.6 billion offer for Caesars Entertainment (NASDAQ: CZR), some analysts speculated that bid implied MGM is worth $55 to $60 a share, indicating Diller’s bid for the Aria operator may not be adequate.

Some analysts have gone so far as to say Diller’s offer is too low and that MGM may be worth well above $60 a share. MGM executives apparently agree that the broader market doesn’t properly value the company. Speaking at the NYU International Hospitality Investment Forum last month, CFO Jonathan Halkyard said MGM is undervalued by the broader investment community.

Diller concurs. In his June statement revealing People Inc.’s offer for the gaming company, the media mogul noted “the market materially undervalues the power and durability of MGM’s assets.” Whether that sentiment is enough for him to up his offer remains to be seen.

In after-hours trading Friday, MGM settled at $48.40, potentially signaling traders expect a deal to get done at a price that’s close to Diller’s initial offer. Still, there are no assurances the two sides will reach an agreement.

Hard to See Another MGM Bidder Emerging

While MGM’s view that market participants don’t properly value the stock may be accurate, analysts view a competing bid to Diller’s as a far-flung scenario.

In the June statement, Diller made clear People Inc. isn’t planning on selling its MGM stake and that it won’t vote in favor of another change of control offer. Two months prior, Diller and MGM reached an agreement under which the investor’s voting power is limited, except for in extraordinary circumstances. A competing takeover offer likely qualifies as “extraordinary.”

An interesting aside: News of the accelerating talks between Diller and MGM arrives as Caesars’ go-shop period expires today. As of this writing, rumored bidder Carl Icahn hasn’t publicized a competing bid to Fertitta’s for control of Caesars.