Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of casino giant MGM Resorts International (NYSE:MGM) surged as much as 11% Tuesday after an activist investor suggested it spin off real estate assets.
So what: Hedge fund manager Jonathan Litt of Land & Buildings Investment Management said MGM should spin off its real estate into a REIT in order to save on taxes. It's a strategy that's been used by other gaming companies like Penn National, and Pinnacle Entertainment plans to spin off a REIT as well.
Litt also suggested spinning off the lodging and entertainment business and MGM China because he feels they're undervalued and thinks a special dividend could be paid out, too.
Now what: MGM has been considering a REIT for some time and has thus far resisted the structure. One reason is that real estate is one of the most valuable assets MGM owns and the operating company could be in major trouble if it didn't have the underlying real estate assets to back the company.
A spinoff of MGM China seems downright crazy considering the fact that it's MGM Resorts' most valuable asset. I don't see why MGM would make any of these moves and with Kirk Kerkorian as a major shareholder they have a powerful voice to counter the hedge fund's proposals for a short-term profit.
While investors often get excited about spinoffs or activist investors I wouldn't buy the pop today. A REIT spinoff wouldn't do much to fundamentally alter the company's operations and it could actually make it a riskier stock. For MGM, it's more important to get Macau's operations growing again than it is to play around with financial transactions and that's where investors' focus should be as well.