The Catalyst Ridden MGM

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There’s a new catalyst on the activist investing front for MGM ($MGM). Recall that Land & Buildings, the REIT activist hedge fund, was on the prowl to get MGM to create a REIT for its owned land. It ultimately backed down earlier this year. But with Kirk Kerkorian’s death, Land & Buildings, and its founder John Litt, are kicking up dust again.

We did a deeper dive into MGM as part of Activist Strategy the other day, outlining the possible options for Tracinda’s 16.2% stake.

What’s activist strategy

The 50,000-foot thesis is that with Kirk’s death, his holding company will have to liquidate its 16.2% stake in MGM.

This should rekindle talk of a REIT conversion or outright sale

L&B thinks that MGM is worth $30 a share. For the REIT thesis, MGM has hired JPMorgan to advise on the potential, as well as looking at real estate asset sales. The other key is that once Kirk’s 16.2% stake is sold, there will be no related party issues to interfere with a REIT.

The other catalyst could be a merger

Consolidation in the casino industry is a comin’, it’s just a matter of time. The logical merger partner is Wynn Resorts. Steve Wynn has had a hard on for MGM since Kirk picked off assets from Wynn many years ago.

Wynn also restructured last year, moving its real estate into a subsidiary, making a potential REIT conversion easier. After all, MGM’s Jim Murren did say, “it is very likely that the gaming industry will look a lot more like the hotel industry does today.”

For better or worse, MGM is still mainly a domestic gambling play. 85% of its EBITDA is from the domestic businesses. A positive though, in the sense that there’s no clear sign of a bottom in Macau.

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