Within the span of just a week, the two largest casino-resort operators on the Las Vegas Strip became targets of multibillion-dollar acquisitions.
First came Fertitta Entertainment's agreement to acquire Caesars Entertainment for $17.6 billion, announced on May 28. Just days later, Barry Diller's People Inc. put forward a bid for MGM Resorts International, with that transaction valued at around $18 billion. Both deals, if completed, would take the companies private.
In a statement, Diller said he believes MGM's assets are "materially undervalued." Industry experts agree, even though Las Vegas visitor volume was down 7.5% last year, to approximately 38.5 million visitors, according to the Las Vegas Convention and Visitors Authority.
"If one set of investors dramatically undervalues companies, somebody recognizing the value will come in and scarf up the bargains," said Frank Fantini, principal at Fantini Research, a publishing, research and consulting firm serving the gaming industry. "It's the capitalist system at work."
According to Fantini, MGM stock, which he called "a blue chip among casino companies," was trading at around six times its earnings before interest and taxes when People Inc. swooped in with an offer at just over seven times.
And so, the proposal for MGM wasn't a surprise.
"Especially after the Caesars announcement, there has been considerable speculation that offers would be made on other brick-and-mortar casino operators," said Fantini. "The prices have been so low for so long that somebody was bound to buy them out if the public markets would not value them properly."
Amanda Belarmino, an associate professor at the University of Nevada, Las Vegas William F. Harrah College of Hospitality, said "a lot of Las Vegas companies are being a bit undervalued because of a few oddities in occupancy from last year. But that doesn't mean that there isn't a lot of inherent strength and growth."
MGM CFO Jonathan Halkyard addressed the valuation gap during a Q&A at the NYU International Hospitality Investment Forum in New York on June 2. He said, "The valuation on our domestic business is at a very low multiple. That's been the case for quite a while."
Halkyard also suggested that Las Vegas' recent struggles have been overstated. At the forum, Halkyard recounted a recent exchange with an investor who characterized Las Vegas as hitting rock bottom.
"Bottoming out? I missed that one," he said. "Because I was looking at occupancies on Wednesday nights in March of 98.5%."
A hospitality empire
Fertitta Entertainment's acquisition of Caesars would create one of the largest gaming and hospitality companies in the world.
Founded by Tilman Fertitta, Houston-based Fertitta Entertainment owns the Golden Nugget hotel-casino brand and Landry's, a restaurant company with major brands, including Morton's The Steakhouse, Rainforest Cafe, Bubba Gump Shrimp Co. and Del Frisco's. Fertitta also owns the NBA's Houston Rockets.
Caesars operates eight properties on the Las Vegas Strip: Caesars Palace, Harrah's, Paris, Horseshoe, Flamingo, The Linq Hotel + Experience, Planet Hollywood and The Vanderpump Hotel. Caesars also has properties in other parts of Nevada and more than a dozen other U.S. states and Canada.
The combined entity would operate a total of 60 casino hotels and gaming facilities, sports betting through Caesars' digital platform and retail sports betting at more than 200 third-party locations under the William Hill brand.
"On one side is the largest network of casinos in the United States, including the second-largest network of casinos on the Las Vegas Strip," said Fantini. "On the other is a guy who has lots of hospitality [products], including over 500 restaurants, and an ability to cross-market in a way that nobody has done in the past."
That cross-marketing prowess would be boosted by the Caesars Rewards loyalty program.
"Points earned in one of his restaurants can be redeemed at one of the casinos," Fantini suggested.
Belarmino added that Fertitta's casino pedigree is a plus.
"There's sometimes an issue when we see an ownership come in that isn't familiar with casinos," she said, pointing out that Tilman Fertitta already "has a really great reputation as a businessman," particularly in gaming.
Meanwhile, Diller's People Inc. (formerly known as IAC) began investing in MGM in 2020 and currently owns 26.1% of the company.
MGM Resorts operates 31 hotels and casinos globally, including 13 on the Las Vegas Strip, among them the Bellagio, MGM Grand, Mandalay Bay, Aria and The Cosmopolitan.
Diller described MGM as "a rare kind of business: one with real-world assets that AI cannot easily replicate or disintermediate." Halkyard said something similar at the NYU event.
"Live entertainment and these live experiences are not going to become less important," he said. "They're actually going to become much more important, and people will seek that out even more than they do today."