MGM China operates two casinos in Macau, whilst MGM Japan is currently constructing MGM Osaka
Seaport Analyst Vitaly Umansky has said that the planned takeover by People Inc of MGM Resorts could see the operator offload its interests in China and Japan.
MGM China operates two casinos in Macau, whilst MGM Japan is currently constructing MGM Osaka in Japan. MGM holds a 56 per cent share in its China operations and a 40 per cent share in Japan.
He also added that the deal may fail as the valuation excludes the long-term value of both MGM China and MGM’s Japan.
Umansky said: “MGM China becomes an interesting piece in the puzzle that is MGM. It has significantly outperformed the Macau market over the last few years and retained more market share over the past few quarters than we had expected.
“With valuation remaining very undemanding, and what should be a strong Q2 for MGM China, we upgrade MGM China to Buy from Neutral. Should an MGM deal be consummated, we believe there is some chance that People Inc may look to divest ownership in MGM China (and potentially in MGM Japan as well).”
“Our feeling is that People Inc, while serious about buying MGM, is frustrated with MGM’s share performance and is looking to highlight the value of MGM to the market. That is not to say that People Inc’s bid is not genuine. We believe it is, and People Inc most certainly has every interest in getting a deal done at US$48.30 if it can do so.”
CBRE Equity Research pitched MGM Resorts’ share in MGM China to be a value of US$3.3bn.
“People Inc could look to divest all or part of the MGM China stake to help finance its proposed acquisition, fund the Osaka equity commitment, or return equity to its minority partners,” CBRE said.
Analysts at CreditSights believe there will be ‘limited impact on MGM China’s debt profile if the deal goes through.
“Any incremental debt is likely at the MGM Resorts level with MGM China’s bonds, unlike the US dollar bonds of MGM Resorts covered with a change of control provision,’ they explained.
CreditSights analysts Nicholas Chen and David Bussey said: “We keep our ‘outperform’ recommendation on MGM China. We see some price upside for bondholders of the MGM China 2027 and 2033 bonds, given that their bond prices (US$99.75 and US$100.09, respectively) are currently below the US$101 put level. However, we note the MGM China 2031 is currently trading above (around US$104.15, at the time of writing).”
“Given the insufficient liquidity at the MGM China level to service the full debt stack, we opine that People Inc would need to enact a refinancing plan (debt or otherwise) to address MGM China’s debt. MGM Resorts did not disclose further details regarding the potential takeover, such as how much of the acquisition will be debt-funded by People Inc – which could incur incremental debt to MGM Resorts – and what the possible timeline was, if any,” they added. “A largely debt-funded acquisition would likely stretch MGM Resorts’ credit metrics with potential rating downgrade pressure leading to a change of control triggering event. However, the lack of transaction details renders it difficult to determine the likelihood of a rating downgrade at this juncture.”
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MGM China operates two casinos in Macau, whilst MGM Japan is currently constructing MGM Osaka Seaport Analyst Vitaly Umansky has said that the planned takeover by People Inc of MGM Resorts could see the operator offload its interests in China and Japan. MGM China operates two casinos in Macau, whilst MGM Japan is currently constructing…
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