IAC Invests in MGM Resorts International
NEW YORK, Aug. 10, 2020 /PRNewswire/ -- IAC (NASDAQ: IAC) today announced its accumulation of a
"With the separation of Match Group from IAC, and 'new' IAC emerging with
"MGM Resorts presents a unique opportunity for IAC to own a meaningful piece of a preeminent brand in a large category with immense potential to move online," said Joey Levin, CEO of IAC. "We will be a minority investor and a long-term strategic partner, and would welcome the opportunity to contribute to MGM's success in any way that MGM's Board would look favorably on our involvement."
IAC published a letter to shareholders today, outlining the rationale for its investment in MGM Resorts in more detail. The letter in its entirety is below.
August 10, 2020
Dear Shareholders,
Over the last few months we've accumulated a
MGM is a leader in gaming, hospitality, and leisure with a storied brand and an enviable market position. The current pandemic brought revenue (though not expenses) to a temporary halt, and required MGM to repurpose cash it had wisely stockpiled for share repurchases to instead defend the solvency of the company. The good news is, we believe MGM has enough cash and access to capital to make it to the other side competitively stronger.
When the world returns to normal, MGM will be just as capable post-pandemic as it was pre-pandemic in servicing visitors in over
But that's not what originally drove us to MGM, nor in large part drove our final decision to invest. We have a history and much experience in online commerce. So we began our analysis with a focus on a small piece of MGM, a portion of its revenue so small that it rounds down to zero: its online gaming revenue. We've followed the online gaming space for a while, looking for an opportunity to enter, but we were generally unsatisfied with the landscape we saw. The regulations in this
Our history in driving off-line to on-line conversion gives us confidence in the path and, like other industries we've seen transform, a conviction that it will be assisted by natural tailwinds.
Industry | Relevance | Year of | US Online Market in Year of | US Online Market in 2020 |
Dating | Match Group | 1999 | 0 Subscribers | 10M+ Subscribers |
Ticketing | Ticketmaster | 2001 | ||
Travel | Expedia | 2002 | ||
Homeservices | ANGI Homeservices | 2004 | 2 Million Service Requests | 29 Million Service Requests |
Gambling | MGM | 2020 |
Turns out, MGM also has a
As we looked further into MGM, we recognized a familiar sum-of-the-parts story with publicly-traded subsidiaries. MGM's implied "stub" – the domestic business without the real estate – trades at an implied value of nearly zero. That's not unlike IAC's "stub" – which is perennially valued at zero (or less). When we saw the collection of well-run businesses (check), a sturdy balance sheet (check), and the undervalued "stub" after accounting for cash and publicly-traded securities (check), we realized that the MGM situation is remarkably similar to that of IAC.
Implied MGM Domestic Value | ||||
($ in billions, except per share data) | ||||
MGM Share Price | ||||
Shares Outstanding(1) | 493 | |||
Market Capitalization | ||||
(-) MGP stake(2) | (4.9) | |||
(-) MGM China stake(2) | (2.6) | |||
(+) Domestic Net Debt(3) | 1.4 | |||
(-) Value of equity investments(4) | (1.7) | |||
Implied Enterprise Value - MGM Domestic |
We will be a minority investor in MGM, but given the size of our financial commitment, we'd welcome the opportunity to contribute to MGM's success in any number of areas. We think MGM could be one of the largest direct marketers on the internet as online gaming grows, and online direct marketing is an area we know well. We also see transformative opportunities beyond gaming for theatrical onsite activities, including in the regional casinos, and we'd bring our relationships and ideas to make that happen, as well as the potential for expansion into new worlds of media and wagering with innovative and exclusive content. And having served nearly 15 million paying subscribers throughout IAC's businesses last year – and an order of magnitude more customers who don't yet pay to subscribe to our products but use free or "freemium" versions of our services – we'd love to help MGM optimize its "funnel" of M-life loyalty customers and attract new digital-first audiences. The good news is, from the outside looking in, it seems clear to us that MGM's leadership sees these same opportunities, and we will cheer them on as partners.
Over the next decade, free cash flow at MGM could be in excess of its current valuation, and we believe the business will have ample opportunities to invest that capital. If nothing else, of course, our ownership will steadily accrete up if MGM continues to use that free cash flow to shrink its capital base. Regardless of how MGM chooses to put its cash flow to work, the power of that cash flow doesn't appear to be getting much value in the market, and we believe that those financial dynamics – on top of all the other positives – make this investment and its potential return every bit as worthy as other opportunities we may have to deploy our capital.
Although we would never "bet the company," we know that this is a large bet for IAC. We have long been driven to look opportunistically for chances to build great interactive businesses and compound capital for our shareholders, and MGM has a rare but clear opportunity to deliver on that promise. And while we can't say where our investment goes from here, we do believe this is the first step in what will hopefully be a very long and productive relationship. We begin in total alignment with MGM shareholders, management, and the board and we intend to assist and support them in all their ambitions.
Sincerely,
Barry Diller & Joey Levin
1 Shares outstanding per Q2 2020 10-Q
2 Reflects MGM's
3Net debt for MGM Domestic as of Q2 2020 10-Q excludes debt of subsidiaries (MGM China and MGM Growth Properties); includes
4 Equity investments represents ownership in CityCenter based on research average of
IAC disclosed its share acquisition on Schedule 13D filed today with the Securities and Exchange Commission. IAC is actively engaged with gaming regulators in the jurisdictions in which MGM Resorts operates to obtain necessary licenses.
About IAC
IAC (NASDAQ: IAC) builds companies. We are guided by curiosity, a questioning of the status quo, and a desire to invent or acquire new products and brands. From the single seed that started as IAC over two decades ago have emerged 10 public companies and generations of exceptional leaders. We will always evolve, but our basic principles of financially-disciplined opportunism will never change. IAC today operates Vimeo, Dotdash and Care.com, among many others, and has majority ownership of ANGI Homeservices, which includes HomeAdvisor, Angie's List and Handy. The Company is headquartered in New York City and has business operations and satellite offices worldwide.
Cautionary Statement Regarding Forward-Looking Information
Certain statements and information in this communication may be deemed to be "forward-looking statements" within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statements relating to IAC's and MGM's anticipated financial performance, objectives, plans and strategies, and all statements (other than statements of historical facts) that address activities, events or developments that IAC and MGM intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as "believe," "hope," "may," "anticipate," "should," "intend," "plan," "will," "expect," "estimate," "project," "positioned," "strategy" and similar expressions, and are based on assumptions and assessments made by IAC's and MGM's management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. IAC and MGM undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance. Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including: risks and uncertainties discussed in reports that IAC and MGM have filed with the SEC and other circumstances beyond IAC's and MGM's control. You should not place undue reliance on these forward-looking statements. For more details on factors that could affect these expectations, please see IAC's and MGM's filings with the SEC.
Contact Us
IAC Investor Relations
Mark Schneider
(212) 314-7400
IAC Corporate Communications
Valerie Combs
(212) 314-7361
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SOURCE IAC