U.S. casino operator MGM Resorts International is increasing its ownership stake in its China unit to 56 percent, a move that has left analysts baffled given the fragile sense of stability in Macau today.
On Tuesday, the Las Vegas-based casino company announced that it has agreed to acquire 188.1 million shares in its Chinese subsidiary, MGM China Holding Ltd., from CEO Pansy Ho for a sum of $325 million in stock, cash, and deferred cash.
Ho—a member of Macau’s founding gambling family—holds a 27.44 percent stake in MGM China, which will drop to 22.49 percent once the transaction is completed. But in exchange, the executive will receive 4 million MGM Resorts shares, increasing her ownership stake to 4.8 percent.
“As a result of the transaction, the company will acquire an additional 4.95 percent of the outstanding ordinary common shares of MGM China and will own approximately 56 percent of MGM China’s outstanding common shares,” MGM Resorts said in a statement.
As part of the agreement, MGM Resorts will issue 7.06 million shares of its common stock to Ho in addition to paying her $100 million in cash. The casino operator will also make a deferred cash payment of $50 million to Ho, an amount that will be paid over a period of not more than five years.
Analysts, however, are stumped by MGM Resorts’ timing—after all, the casino industry in Macau has just started recovering from the carnage brought by mainland Chinese government’s corruption crackdown. For some, Ho appears to be the only party who will gain something from the deal.
Cameron McKnight of Wells Fargo told Business Insider: “Pansy Ho swapping Chinese for U.S. real estate exposure. By continuing to sell down her MGM China and increase her MGM U.S. stake, Pansy Ho is arguably reducing Chinese and increasing U.S. exposure. Some investors are asking whether Pansy Ho is a continued seller.”
But for Union Gaming analyst John DeCree, the deal is a “key positive” for MGM Resorts.
“We see the trade as an opportunity for MGM to increase its stake in Macau at a discount, while also giving its partner plenty of upside with her new shares of MGM, which we continue to see as deeply undervalued. With this trade, MGM Resorts is also gaining incremental exposure to Macau without incremental development risk – a key positive in our view,” DeCree said in a note.
