MGM Resorts International has ended takeover discussions with its largest shareholder, People Inc., after the investment company withdrew its acquisition proposal and both sides revised their voting agreement.
CEO Bill Hornbuckle confirmed during MGM’s third-quarter earnings call that discussions over either company acquiring the other have concluded.
People, led by Barry Diller, had offered to buy the MGM shares it did not already own before withdrawing its proposal in September. Hornbuckle said MGM and a special committee had agreed on a price, but People was unable to assemble a financing syndicate that met its objectives.
“The discussion between MGM and People ends there,” he said. “The dialog between us and People on you-buy-us-we’ll-buy-you was all about trying to unlock the value of that 25% of our shares. We’re done, and that’s our position. That’s People’s position.”
MGM said no transaction is currently being considered.
Revised Agreement Sets 29.9% Ownership Cap
Under the amended voting agreement, People, Diller and associated parties must vote their MGM shares in line with the board’s recommendation in connection with any future change-of-control transaction.
They also agreed not to acquire additional MGM shares if doing so would raise their combined ownership above 29.9% of outstanding stock.
As long as they comply with the agreement, MGM has committed not to take defensive measures specifically aimed at them.
“This agreement provides the Board with a clear path to maximize value through share repurchases and a change of control transaction, if applicable, in accordance with the Board’s fiduciary duties,” said Paul Salem, Chairman of the MGM Resorts Board, in a press release. “We value People, our largest shareholder, and Barry Diller, an MGM Resorts Director, both of whom will continue to help maximize value for all shareholders.”
MGM retains more than $1 billion in share repurchase authority but did not buy back shares during the third quarter while acquisition discussions were underway.
Las Vegas Results Weigh on Q3 Performance
MGM reported third-quarter revenue of $4.2 billion, down 1% year-on-year.
Group adjusted EBITDA fell 20% to $403 million, while net loss narrowed to $17 million from $285 million in the corresponding quarter last year.
Las Vegas revenue declined 2% to about $2 billion, with segment adjusted EBITDAR down 12% to $531 million.
Average daily room rates and revenue per available room both fell 8%. Casino revenue performed better, helped by a 17% increase in table games win to $363 million.
“Undoubtedly, Las Vegas has been hurt more than most (travel markets),” Hornbuckle said. “The Canada issue, the international travel issue, has not helped. So we just need to push our way through those things really one at a time.”
He also pointed to higher airfares and changes in airline capacity as pressures on the market.
“We’ve had this whole narrative around value, and we still believe Las Vegas is an amazing value,” Hornbuckle said. “That’s something we continue to talk about and push our way through, if you will.”
Regional revenue fell 8% to $883 million, while adjusted EBITDAR declined 18% to $243 million. Casino revenue in the segment decreased 10%, including an 11% fall in slot win.
MGM China Sets Quarterly Revenue Record
MGM China delivered stronger top-line results, with revenue reaching a record $1.1 billion, up 5% year-on-year.
Market share rose to a record 17%, although adjusted EBITDAR declined 7% to $264 million.
“There are a lot of factors impacting our margins, like event calendars, high-end play, etc., but we are very focused on our efficiency,” MGM China CEO Kenneth Feng said.
MGM also continues development of its Osaka integrated resort in Japan. Hornbuckle said the project is around 11% complete and remains on schedule and within budget.
He described MGM Osaka as the “greatest integrated resort opportunity anywhere on the globe”.
The company ended the quarter with $2.3 billion in cash and $5.6 billion in long-term debt.
With the People discussions now closed, MGM said it will focus on its operating strategy while keeping flexibility for future share repurchases or other transactions considered appropriate by its board.