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Best of Howard Stutz

Gaming Guru

Howard Stutz
 

Inside Gaming: Despite the rumor, an MGM-Wynn merger is off-base

10 June 2015

CNBC host and financial gossipmonger Jim Cramer set the gaming investment community aflutter last week.

Cramer told his “Mad Money” audience there was “speculation” that Wynn Resorts Ltd. “might merge” with MGM Resorts International.

The report was repeated on TheStreet.com website, where Cramer is a founder, director and the largest shareholder.

There was zero substantiation, and he didn’t cite sources. It was never explained which company would be the buyer.

The Wall Street gaming analyst community ignored Cramer’s report. Wynn Resorts spokesman Michael Weaver and his MGM Resorts counterpart Clark Dumont both laughed off the story and declined comment.

Motley Fool, the multimedia financial-services company, made light of the rumor. Writer Travis Hoium said over the weekend that “it may be fun to speculate about a deal between Wynn and MGM, but at this point it’s unlikely that one is imminent.”

The companies operate in the same markets — Las Vegas and Macau — and are planning hotel-casinos in Massachusetts. Combined, Wynn-MGM would have a market capitalization of $22.52 billion and annual cash flow of $4.04 billion. But it would also have Caesars Entertainment-like debt of $19 billion.

The notion of a Wynn and MGM merger is ludicrous.

So why bring it up a week later?

A day after Cramer floated the nonsense, TheStreet.com and other Internet financial sites credited the report with sending shares of Wynn up 7 percent.

Talk about tooting one’s own horn.

That same morning, however, J.P. Morgan gaming analyst Joe Greff told investors in a research report that Wynn, which fell below $100 per share earlier in the week — the company’s lowest stock price in five years — was greatly undervalued and presented a buying opportunity.

Greff’s comments carried a little more weight.

Macau’s cratering casino market is the primary reason the stock prices of Wynn, MGM and Las Vegas Sands Corp., have bounced around. Last week, Credit Suisse in Hong Kong advised there were signs of rebound coming from Macau. The three companies saw their stock prices jump.

On Monday, Sterne Agee gaming analyst David Bain said the first week of Macau’s June gaming results were less than spectacular and the market was facing a 13th straight monthly gaming revenue dip. Shares of Wynn, MGM and Las Vegas Sands all gave back the value picked up a few days earlier.

Cramer’s unattributed rumor might have sparked some attention in Wynn and MGM, but the ride on the Macau roller coaster is driving this bus.

The idea of a Wynn-MGM combination is a little tough for anyone to imagine.

Remember, there is a history between Wynn Resorts Chairman Steve Wynn and MGM Resorts. In 2000, Wynn sold Mirage Resorts to MGM Grand for $6.4 billion, and with it, his treasured Bellagio and The Mirage.

As Wynn now tells the story, MGM founder Kirk Kerkorian “did him a favor” by negotiating a price of $21 a share for Mirage Resorts and the assumption of $2 billion in debt.

Wynn took the money, bought the Desert Inn and created Wynn Resorts.

So Wynn, at age 73, wants to more the quadruple the size of his company?

At the same time, MGM Resorts has accomplished a turnaround since the recession when development of CityCenter brought the company closer to bankruptcy than Chairman Jim Murren cares to remember.

MGM Resorts’ balance sheet is now strong, $12.54 billion long-term debt is manageable, and construction of new resorts is underway in Springfield, Mass., National Harbor, Md., and Macau. MGM’s nongaming investments on the Strip, such as a $350 million sports arena, are drawing praise from Wall Street.

Taking on Wynn at this point in the game would be ridiculous.

So why would Cramer, who also manages the Action Alerts PLUS Charitable Trust Portfolio, float the rumor? CNBC and Cramer representatives didn’t respond to emails seeking comment.

Would Wynn like to reclaim his spacious office at the Bellagio that is now occupied by Murren? Does Murren want to move his corporate address to Wynn’s equally plush office at Wynn Las Vegas?

The signs are doubtful.

So where was Wynn when these imagined merger talks started?

According to Akorda.kz, the official website of the president of Kazakhstan, Wynn met on May 25 with President Nursultan Nazarbayev in the country’s capital of Astana. The website provided a photo of the two men talking at a conference table.

Nazarbayev’s press office said the two discussed tourism and hotel development in Kazakhstan. They also touched upon, according to the report, the possibility of cooperation on joint projects.

It doesn’t sound like the Bellagio was one of those ventures.

One could suppose there is a “Borat” joke is somewhere in that statement.
Inside Gaming: Despite the rumor, an MGM-Wynn merger is off-base is republished from Online.CasinoCity.com.