MGM China’s largest public shareholder, Asian investment management firm Snow Lake Capital, has penned an open letter to MGM Resorts International urging the company to sell off 20% of its MGM China stake to either a leading Chinese consumer internet or a travel and leisure company as part of a strategic initiative to better position both companies for future growth.
The letter, published by Snow Lake Capital and its founder Sean Ma on Wednesday, outlines six key reasons for pursuing such a transaction while also proposing several potential investors that could “create a win-win transaction for all parties involved and deliver significant shareholder value to both companies.”
Snow Lake Capital currently holds a 7.5% stake in MGM China.
According to the open letter, a move by MGM Resorts to reduce its current 55.95% interest in MGM China by 20% would allow a new strategic investor to bring “significant non-gaming resources to both MGM China and Macau, which is a crucial factor for the gaming concession re-tendering in 2022.” MGM China, it adds, “needs to consider all options to maximize its chance of obtaining a new concession in 2022. A scenario of not being able to achieve this goal will be disastrous for both MGM China and MGM Resorts International.”
In particular, such a transaction would provide significant value for MGM China shareholders by allowing for a gain in the company’s market value which Snow Lake says is currently valued 20% to 30% lower than Macau’s local operators due to the 2022 gaming concession overhang.
The letter also suggests a potential partnership between a new strategic investor and MGM China’s Co-Chairperson and Managing Director Pansy Ho can play a “significant role” in Macau’s diversification and Greater Bay Area integration.
The transaction would be positive for MGM Resorts too, Snow Lake says, in its pursuit of IR development in Osaka, Japan by freeing up capital – ultimately providing flexibility to jointly pursue M&A opportunities in online sports betting in the US. As reported by IAG, MGM Resorts has been in discussions with its BetMGM joint venture partner, Entain PLC, over a potential US$12.9 billion (or higher) takeover bid.
Among the companies Snow Lake Capital sees as a suitable fit are Meituan, which runs one of China’s largest consumer services internet platforms, Chinese online travel agency Trip.com, multi-brand hotel company Huazhu Group and top four Chinese property developer Sunac China Holdings Limited.
“Introducing one of China’s top consumer internet platforms as a significant strategic shareholder for MGM China creates a win-win transaction, as it distinguishes MGM China by bringing non-gaming capabilities and resources to Macau at the industry’s post COVID-19 low,” Snow Lake says.
“On the other hand, these companies will also benefit from the strategic investment in MGM China.”
Snow Lake says it backs MGM Resorts’ pursuit of a Japan IR license as well as its moves to acquire Entain, encouraging the company to look into the proposed sale of 20% of MGM China in order to fund both opportunities.
“With a successful deal, MGM Resorts International can position itself well in a secular growth market,” the letter reads.
“For the aforementioned reasons, we strongly urge MGM Resorts’ Board and management team to seriously pursue a strategic transaction with a leading Chinese consumer internet or travel and leisure company to best position the MGM Resorts shareholders for future success in Macau.”
MGM Resorts issued short statement early Thursday morning Macau time in which it acknowledged Snow Lake’s statement.
“MGM Resorts remains committed to Macau and will continue to take actions that are in the best interests of its shareholders and stakeholders,” it said. “We appreciate continued constructive engagement with MGM China shareholders.”
Snow Lake was seen increasing its own stake in MGM China late last year, including the acquisition of HK$128 million (US$16.5 million) worth of shares via two transactions in September and October.
