Current Price: $26.71
Offer Price: $29 – $34
Upside: 8.5% – 27%
Expiration Date: 12th of March 2020
On the 13th of February casino giant MGM Resorts has launched a dutch tender offer (with odd lot provision) for about ~7%-8% of its outstanding shares with a price range of $29-$34/share. Shares used to trade just above the middle of the range until the 20th of February when the news about a major data breach were unveiled – apparently data of more than 10.6m customers was hacked in the middle of ’19. The company acknowledged the incident, yet stated that no financial, payment card or password information was leaked. Nonetheless, Morgan & Morgan, a law firm with previous experience in several data breach cases (Cambridge Analytica, Equifax, Yahoo) has filed a lawsuit against MGM.
As a result MGM share price tanked and currently trades at $26.71, which is below the lower limit of offer. This creates an attractive opportunity of 8.5% – 27% upside ($226-$721 for odd lots), however there is also a significant risk that the offer might get cancelled/amended. One of the conditions of the tender is that in case MGM shares fall more than 15% from the pre-announcement price (12th of Feb – $33.66/share), company can terminate or amend the tender.
- This tender comes as a part of the freshly announced $3bn share repurchase program.
- The offer will be financed by cash on hand (total offer price is $1.25bn while MGM has $2.3bn of cash).
- A day before the tender offer announcement, the company reported solid annual results – revenues up 9% YoY, adjusted EBITDAR up 6% YoY, however management has also stated that it expects unpredictable headwinds (mostly related to Corona virus) in 2020 and even withdrawn the guidance for 2020.
- MGM has a significant exposure to China (23% of net revenues) and owns two large casinos there – MGM Macau and MGM Cotai. This month all of the Macau casinos were suspended for two weeks (costing the company $1.5m/day in operating expenses) and were allowed to partially reopen on the 17th of February.
- Regarding the lawsuit, so far it is not clear neither how many affected customers will join it, nor what will be the final settlement size. However, these types of lawsuits take several years, so that alone should not affect the tender offer.