Breakingviews – A big Chinese backer would be roll of dice for MGM

Employees inside the casino prepare for the opening of MGM Cotai in Macau, China February 13, 2018.

HONG KONG (Reuters Breakingviews) – There’s a new gamble worth taking for MGM Resorts International. One of its Asian investors, Snow Lake, wants the U.S. casino operator to sell a fifth of its $6 billion Macau business to a Chinese partner. Although it would complicate deals at home and elsewhere, the idea has plenty of merit.

Macau plans to entertain bids for casino concessions next year. It will be a pivotal time for MGM Resorts, with plenty at stake. The world’s biggest gambling hub accounted for almost a quarter of its $12.9 billion of revenue in 2019. As China’s economy recovers, the post-pandemic prospects are also tantalising for what was a $37 billion market just a year ago.

With China and the United States at loggerheads, both Beijing and Macau might prefer local ownership. The possibility seems to have dawned on shareholders. Macau’s three American operators have been trading at a discount to homegrown companies such as Galaxy Entertainment, SJM and Melco Resorts and Entertainment, in terms of their enterprise value to EBITDA multiples. A partner closer to home might help MGM make a stronger case for a new licence and favourable terms. Snow Lake founder Sean Ma suggested online travel outfit Trip, food-delivery to bookings giant Meituan, hotel chain Huazhu or tourism group Sunac China as possibilities.

The virus has suppressed casino share price, but an MGM China stake sale would still bring a useful chunk of change. An $11 billion offer from MGM Resorts for Entain, the owner of British betting shop Ladbrokes, was rejected this week. MGM Resorts is also poised to apply for a licence in Japan, a project that could require a $10 billion investment.

Taking on a big Chinese backer would ruffle feathers elsewhere, however. It might deter other potential local partners. The gambling industry in particular is vulnerable to concerns over an owner’s so-called “probity”, or suitability to hold a gaming licence. MGM itself endured intense U.S. scrutiny back in 2009 for its connections with Macau’s Ho family. That makes the investor proposal something of a roll of the dice. On balance, though, it’s probably worth a punt.


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