MGM Resorts International (NYSE:MGM) is being asked to sell 20% of its holdings in MGM China Holdings, the business that operates its integrated resorts in Macao, as a means of unlocking shareholder value.
Snow Lake Capital, a China-focused hedge fund that owns 7.5% of MGM Resorts stock, told the resort operator that selling the stake to a Chinese consumer, internet, or travel and leisure company would introduce new, non-gambling capital to the company and allow it to pursue other avenues of growth, such as online sports betting and gaming.
MGM Resorts owns 56% of MGM China. The suggestion, however does have merit.
A bet on China's growth
Just this week it was revealed MGM is pursuing an $11 billion takeover of U.K.-based sportsbook Entain, its BetMGM app partner. The sportsbook rejected the offer, saying it undervalued the company.
Yet the emphasis of Snow Lake's letter was more focused on what the sale could do for MGM China.
Macao resorts are set to begin the concession recertification process in 2022, and there is a good possibility more licenses will be issued. Because Beijing has been pushing for more non-casino related activities in Macao, Snow Lake contends "The new 20% strategic Chinese partner will significantly enhance MGM China's outlook of securing a new concession in 2022, triggering a rerating of the stock."
The hedge fund also said valuing MGM China on just the sector average represented 13% upside, and if it traded on par with peer Galaxy Entertainment, there was as much as 32% upside.
A sale of 20% of MGM's stake in its subsidiary would still leave it as the largest shareholder, while leaving MGM China's co-chairman Pansy Ho as the second biggest.
MGM Resorts, however, was non-committal in its response to the letter, saying it appreciated conversing with investors.