MGM Resorts International (MGM) – Odd Lot Tender Offer – $230 Upside

Current Price: $26.71

Offer Price: $29 - $34

Upside: 8.5% - 27%

Expiration Date: 12th of March 2020

Offer document

 

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.

 

Additional points

  • 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management has also stated that it expects unpredictable headwinds (mostly related to Corona virus) in 2020 and even withdrawn the guidance for 2020.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.

 

15 COMMENTS

  1. blades

    MGM seems especially exposed to corona virus risk. From CS stock analysis (FYI written in Oct.):
    ■ Key Risks: Las Vegas Strip is highly cyclical and sensitive to the broader economy and supply growth in Las Vegas and regions. Macau gaming is historically volatile and is very sensitive to the Chinese economy and macro and micro policy decisions.

  2. Alex15

    the stock is now trading below the lower end of $ 23.5, so it looks like the price gets amended again

  3. mistamick

    Are odd lots now subject to proration? The amended offer does not seem to mention that.

    1. Zulu Investor

      I don’t think there is any difference to the odd lot terms, as far as I understand. What people are afraid of is the purchase price terms per stock being amended again although as we get closer to the tender expiration date, the odds for amendment should be less and less. I haven’t see too many recent cases with odd lots being amended 2 or 3 days before the odd lot expiration date.

  4. Ben

    With only a few days to go until expiration, do folks think the tender will be modified or cancelled?

  5. Alex15

    Stupid question: the document states a price between 23.50 and IB only let me tender at $23,75 as the minimum price. Is that a mistake by them?

    1. mistamick

      Alex, you have every right to tender your shares with no price indicated. If the company receives tenders for enough shares at the minimum $23.50 price, none of your shares will be accepted. Call them back to correct your tender. They are dead wrong!

      1. Jim Davis

        He probably did it wrong.

        There IS an option of NO PRICE, which is what you want

        For some reason they omit the lowest price in the option that lets you state a HIGHER price, probably because its redundant with the NO PRICE option.

        You can probably change it yourself without calling , using the same tool

        1. Alex15

          Thank you. That was very helpful. I would have tendered at the wrong price otherwise.

  6. Jim Davis

    Seems odd (no pun) that they would go ahead at the high price vs the current market carnage
    Are they philanthropists

    1. Alex15

      Do you hold the shares and wait for another tender, once the market is normal again?

      1. nostradamus

        I’m not sure if there will be another tender, sounds like they might need the cash in the near future.

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