Please ensure Javascript is enabled for purposes of website accessibility

Why MGM Resorts Would Be the Perfect Buyer for Wynn Resorts

By Travis Hoium – Apr 10, 2018 at 9:32AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Look at MGM's existing relationships in Wynn's markets.

Rumors began swirling late last week that MGM Resorts (MGM -0.90%) was interested in buying the embattled Wynn Resorts (WYNN -2.05%) in a deal that would be the biggest ever for the gaming industry. It makes sense that competitors are viewing Wynn as a target after founder Steve Wynn stepped down as CEO and sold his shares in the company, but there may be reasons Wynn Resorts should want to sell to the right company. 

The Massachusetts Gaming Commission is already investigating Wynn Resorts and has made clear that it may pull the company's gaming license if it deems the company unfit to operate in the state. Nevada regulators are also looking into actions by Steve Wynn and his former company. A sale of Wynn Resorts could ease a lot of the pressure, and no company's existing relationship with regulators fits what Wynn Resorts needs quite like MGM Resorts'. 

Macau's skyline over the water.

Image source: Getty Images.

What makes it a great fit

Wynn Resorts has gaming licenses in Las Vegas, Massachusetts, and Macau. Coincidentally, MGM Resorts is the only company in the world that also has licenses in the same locations. 

The Massachusetts investigation that could put the $2.4 billion Wynn Boston Harbor in question could be resolved if MGM simply took control of the property. Regulators may not want MGM to own two casinos in the state, but I'm sure MGM would be willing to sell MGM Springfield, if necessary, if it had the chance to take over Wynn Boston Harbor. 

In Macau, there are just six concessionaires, and Wynn and MGM are two of the smallest if you're judging by table games, hotel rooms, or the number of casinos. A combination of the two may be easier for regulators to swallow than bringing in a new operator like Caesars Entertainment, a company that I've suggested should look to buy Wynn as a way to buy into Macau

Las Vegas would be the easiest integration, because MGM already owns nearly half of the Las Vegas Strip. Adding Wynn's properties would simply expand that presence. 

From a regulatory perspective, Wynn Resorts and MGM Resorts fit like a glove, and that shouldn't be overlooked in gaming. 

How MGM could buy Wynn Resorts

MGM Resorts and Wynn Resorts are about the same size from a market capitalization perspective, but there are a number of innovative ways MGM could finance a deal to make it a win for shareholders. One option includes using MGM Growth Properties (MGP), its U.S. real estate investment trust (REIT), to acquire Wynn Resorts' real estate. 

Wynn Boston Harbor could be valued at around $2 billion by the REIT, given its construction cost, and Wynn Las Vegas would likely be worth $5 billion or more. That's $7 billion that could be financed through the REIT. 

To fund the rest of the acquisition, MGM Resorts could use a combination of stock, new debt, or some of the $1.5 billion in cash already sitting on its balance sheet. But being able to reduce the outlay by around $7 billion via the REIT contribution would be a big advantage in getting a deal done. 

Wynn may need to find a new home

If regulators are serious about pulling any of Wynn Resorts' gaming licenses, the company's only option may be to find an acquirer who can take over its resorts. Given its existing gaming licenses and relationships with regulators around the world, MGM Resorts may be the best-suited potential buyer. And its REIT may be a vehicle that could facilitate the financing of a deal that would be the biggest the gaming industry has ever seen. 

Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Wynn Resorts, Limited Stock Quote
Wynn Resorts, Limited
$63.03 (-2.05%) $-1.32
MGM Resorts International Stock Quote
MGM Resorts International
$29.72 (-0.90%) $0.27
MGM Growth Properties LLC Stock Quote
MGM Growth Properties LLC

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.