‘We’re Done’: MGM CEO Rule Out M&A Talks With Largest Shareholder People Inc.

“We are done.” With those three words, MGM Resorts International (NYSE: MGM) CEO Bill Hornbuckle formally ended months of back-and-forth M&A speculation with largest shareholder People Inc. (NASDAQ: PPLI).

MGM CEO Bill Hornbuckle formally drew a line under takeover discussions during the company’s Q3 earnings call late Wednesday. Hornbuckle opened the call by addressing ongoing deal speculation and highlighting a newly amended voting agreement unveiled earlier in the day. That accord caps People’s ownership of MGM equity at 29.9% while providing an avenue for the publishing house to approve a takeover of the casino operator by another party in the future.

People dropped an $18 billion takeover bid of the Excalibur operator last month amid deal complexities.

Don’t Bet on an MGM/People Transaction

Soon after the People takeover offer fell apart, speculation surfaced that MGM could make a run at Diller’s company in an effort to get control of his MGM equity – a move that would essentially amount to a massive share buyback – but that’s unlikely to happen.

“Look, we are done, and I meant that we’re going to refocus on our business, the dialogue back and forth between us and people on, you buy us, we’ll buy you,” said Hornbuckle on the call in response to analyst question. “It was all about trying to unlock the value of that 25% of our shares, we’re done.”

People owns more than 26% of MGM’s shares outstanding, making the media company the largest MGM shareholder.

After the original merger talks collapsed, Diller expressed interest in a future “strategic transaction” with the casino giant, but it’s not clear how such a deal would take shape and it appears as though one isn’t in the cards.

For MGM, an ‘Overhang’ Is Gone

MGM could benefit from putting People deal talks to rest. There was widespread commentary that Diller’s initial offer for the gaming company undervalued it. Likewise, the idea of MGM acquiring People was viewed as a potentially ill fit and possibly complex in its own right.

As Texas Capital analyst David Bain points out, MGM has removed an “overhang” and that may be a good thing moving forward.

“In our view, while certain arbitrage models suggested economic merit in a two-step transaction—theoretically acquiring MGM shares through an acquisition of People Inc. followed by an asset divestiture—the structural opacity, uncertain execution timeline, and shifting transaction premiums may have created a persistent valuation discount for MGM shares,” writes Bain.

“In our opinion, terminated discussions and an amended voting pact capped at 29.9%, removes a structural distraction,” the analyst concluded.