Could Steve Wynn be eyeing an acquisition of the casinos he built on the Las Vegas Strip decades ago? Source: Wynn Resorts.

Wouldn't it be ironic if Steve Wynn bought back the resorts he was forced to sell to MGM Resorts (NYSE:MGM) in 2000 when Mirage Resorts was bought out for $4.4 billion?

That's what Jim Cramer recently brought up when he said there was speculation that Wynn Resorts (NASDAQ:WYNN) and MGM Resorts could merge to form the latest gaming behemoth. But does a deal like that make any sense for either company? 

What an MGM Wynn might look like
If Wynn Resorts and MGM Resorts did combine forces, they would own a dominant position on the Las Vegas Strip and in Macau. In Las Vegas, the companies already own Wynn Las Vegas, Bellagio, Mirage, MGM Grand, and half of CityCenter, among many other resorts. In Macau, they own Wynn Macau and MGM Macau, but they're constructing Wynn Palace and MGM Cotai, both in the Cotai region. The four Macau resorts could create a major competitor to Las Vegas Sands' (NYSE:LVS) four operational resorts and another under construction. 

From an income statement and balance sheet perspective, a deal is a bit of a question mark.


Wynn Resorts

MGM Resorts


Market Cap

$11.10 billion

$11.42 billion

$22.52 billion

Net Debt

$6.51 billion

$12.54 billion

$19.05 billion

EBITDA (ttm)

$1.60 billion

$2.44 billion

$4.04 billion

Net Income (ttm)

$460.1 million

($82.7 million)

$377.4 million

Source: Company SEC filings and Y! Finance.

You can see that MGM is the larger company, but it also has nearly twice as much debt as Wynn. And it's not like the stock is cheap; in fact, it's worth more than Wynn Resorts right now. 

MGM's plans for a resort in Japan. Source: MGM Resorts.

Who would buy whom?
The other question is who would be the buyer in a merger?

Steve Wynn isn't one to run a highly leveraged company, and leverage is what MGM Resorts does best. The company's $12.5 billion in net debt is what's resulting in net losses, and Wynn would have to assume that debt in a merger. And, as I mentioned, Wynn would be paying a premium for the company. I haven't even mentioned the fact that there are only three or four resorts in the MGM family that Steve Wynn would likely want, given his desire for high-quality resorts that serve the top of the market. 

From MGM's perspective, a merger makes a lot of sense. Wynn has a better balance sheet and profitable operations in Las Vegas and Macau, plus Wynn Palace opening next year. The problem is buying out Steve Wynn. I can't imagine him giving up control of his company to MGM Resorts, a company he already lost Mirage Resorts to. 

I don't see any way MGM buys Wynn Resorts, so Wynn would have to be the acquirer. There's only one reason he would do that, and even that's a stretch. 

Wynn Palace on Macau's Cotai Strip. Source: Wynn Resorts.

The only logical explanation
Let's assume for a moment that Steve Wynn did want to merge with MGM, and that he would be the CEO of the resulting company. The only reason he would want to do so would have to be empire building. He could buy back Bellagio and Mirage, which he lost in the Mirage sale to MGM 15 years ago. But financially, it doesn't make a lot of sense, and he has two new resorts opening in the next few years, so his current empire is growing anyway.

Buying MGM with stock also doesn't make a lot of sense. Wynn Resorts currently has an enterprise value of 11 times EBITDA, a higher multiple than MGM's 9.8. But Wynn also has Wynn Palace under construction in Cotai, and when completed, it could double Wynn's EBITDA, making the stock look a lot cheaper. So, why would he use an undervalued stock trading at 50% off from its 52-week high to buy a competitor that would triple its debt?

Financially, from Wynn's perspective, I don't see how a deal makes a lot of sense. The combined company would have more scale, but that hasn't proven to be a winning formula in gaming (see Caesars Entertainment), and the assets wouldn't fit together naturally at all.

A deal probably isn't imminent
It may be fun to speculate about a deal between Wynn and MGM, but at this point it's unlikely that one is imminent. 

Of course, they could surprise me. 

Editor's note: This article has been corrected. MGM does not own Treasure Island.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.