MGM China Buys Parent’s Mainland Hospitality Arm for $20M

MGM China paid $20 million to acquire MGM Asia-Pacific Ltd from its parent company, paving the way for the Macau casino operator to expand its mainland hospitality footprint.

MGM Asia-Pacific Ltd, which was acquired from MGM Resorts International (NYSE: MGM), runs eight hotels in China and has another dozen projects in the works.

Like its former parent, MGM Asia-Pacific operates an asset-lite model, meaning it doesn’t own those hotels. Rather, it’s a hospitality management company leveraging the famed MGM brand.

“[MGM China] considers that the Acquisition represents a strategic opportunity for the Group to consolidate and strengthen its presence in the hospitality management and cultural tourism sectors in Greater China,” according to a company filing with the Hong Kong Stock Exchange. “Following completion of the Acquisition, the Company will obtain strategic and operational control over the Target Group through its management rights and will be able to align their business with the Group’s long-term development strategy.”

Las Vegas-based MGM Resorts owns about 56% of MGM China, which operates two casino hotels in Macau.

Bolt-On Buy for MGM China

For MGM China, which runs MGM Cotai and MGM Macau, the deal for MGM Asia-Pacific can be considered a bolt-on acquisition – one requiring minimal capital outlay, but also one that could pay dividends over the long term.

It must be noted that the hotels managed by the selling entity are not gaming venues. Casino gaming is not allowed in any Chinese territory outside of Macau. However, the buyer is gaining an avenue to further promote itself on the mainland, potentially gaining a funnel through which it can lure new guests to its Macau integrated resorts.

The seller “has established a meaningful market presence, with 8 operational hotels, a pipeline of more than 12 active projects and access to over 1.5 million ‘Mlife’ loyalty program members,’ according to the statement. The Group will assume the operating history, brand platform, and relationship network that MGM Hospitality has developed over nearly two decades.”

Not a Big Deal for MGM

For MGM Resorts, the largest operator of casino hotels on the Las Vegas Strip, a $20 million transaction doesn’t move the needle much, particularly when considering that’s a pre-tax figure for a global giant.

MGM is currently mulling an $18 billion takeover proposal from its largest shareholder, Barry Diller’s People Inc. (NASDAQ: PPLI), to buy out the remaining shares of the casino operator and take it private—confirming the parent company has much bigger fish to fry than dealing with a small hotel management business in China.