MGM keeps buying the China story

MGM keeps buying the China story

Wednesday, August 17, 2016 Posted by Andy McCarron
Company buys further stake in MGM China subsidiary from partner Pansy Ho

MGM Resorts International has reaffirmed its commitment to the Macau gambling market by snapping up an extra near 5% stake in its already majority-owned MGM China subsidiary in a move which analysts suggested was somewhat ill-timed.

MGM has bought the 4.95% slug of MGM China shares from its long-term partner in the gambling enclave, Pansy Ho and her wholly controlled entity Grand Paradise Macau, for a total consideration of around $350m consisting of $100m in cash, another circa $175m of shares and a further $50m of deferred payments in lieu of the dividends she would have received. The new shares tally takes MGM’s stake in the China unit to approximately 56%.

Greeting the news, MGM Resorts International’s chairman and chief executive Jim Murren said the share buying was proof of the company’s faith to the long-term health of the Macau market. "MGM Resorts is committed to the long-term growth of Macau as a premier international tourism destination and we are pleased that we can build upon our longstanding relationship with Pansy to further work toward our mutual interests," he said.

The deal does not represent a lessening of ties between MGM and Pansy Ho. In a contra transaction, Ho has bought four million shares in MGM Resorts International from now deceased MGM founder Kirk Kerkorian’s Tracinda Corporation for a total outlay of $100m. Ho now owns just under 5% of MGM Resorts International.

She said of her deal: "The transaction represents another important step in expanding this multi-faceted relationship with the MGM Resorts, while remaining a significant shareholder in MGM China,” she said. “I am excited to deepen my relationship with the MGM family."

Murren added: "Together, we believe in the future of the Macau marketplace and are confident in the success of MGM China as we expand into Cotai next year."

However, Deutsche Bank gaming analyst Carlo Santarelli said that the price MGM had paid for the extra MGM China shares was toppish, particularly given the market dynamics right now including the wave of new supply hitting the market this year and next, including MGM China’s own new Cotai property slated for launch in the second quarter of next year.

As TotallyGaming wrote last week, the company has to an extent admitted the market is changing shape by stating that the new casino would have only mass market gaming tables with no VIP element when it opens.

Santarelli added: “While we don’t view the transaction as tremendously needle moving, we do believe the added confusion around the rationale will create a modest distraction from the core MGM fundamental story," he told his clients in a note published on Tuesday. He added that he thought the timing of the deal was perplexing.

TotallyGaming Says: While the desire to commit to Macau is understandable, the recent developments in the market suggest that the deal isn't as good for MGM now as it was when the discussions first started out. What could have been the beginning of the end of the relationship with Pansy Ho though has in reality strengthened the ties between them.

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