Gaming stocks of all stripes are tumbling this year amid persistent inflation and rising interest rates, among other macroeconomic headwinds. While MGM Resorts International (NYSE:MGM) isn’t immune from that slump, Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC) is highlighting its investment in the casino operator.
This week marks the two-year anniversary of when the conglomerate started amassing a stake in the gaming behemoth, which was publicly revealed in August 2020. In noting the company isn’t taking a “victory lap,” IAC CEO Joey Levin points out in his new letter to shareholders that the MGM investment is working out quite well.
We bought our first share of MGM Resorts International for $12.17. We went on to buy another $1 billion worth of MGM shares over the following twelve weeks because the market provided us with what we described at the time as a once-in-a-decade opportunity to own the largest stake in a category leader at an unreasonably low price relative to risk,” writes Levin.
The chief executive says IAC’s stake in the Bellagio operator is now 15%, making it the largest investor in the casino company.
IAC Rapidly Supportive of MGM
When IAC revealed its MGM investment, the media and online conglomerate made clear it saw an opportunity with the BetMGM brand. That’s while viewing the then-struggling, land-based casino business as an “icing on the cake” proposition.
New York-based IAC has interests in a variety of internet companies, including Ask.com, Care.com, and media property The Daily Beast, and has a reputation for unlocking value in an assortment of consumer internet businesses.
Over the past two years, IAC is proving to be a dependable partner for MGM. In January 2021, Diller’s company offered financing for MGM in its takeover bid for BetMGM partner Entain Plc (OTC:GMVHY), though that marriage never materialized.
Earlier this year, the two parties teamed up to buy $405 million worth of MGM stock from Keith Meister’s Corvex Management, effectively removing nine million shares of the casino operator’s equity from the open market.
Where Things Stand Today
While shares of MGM are off 21.7% year-to-date and hover around 52-week lows, the $36 handle indicates the value of IAC’s investment more than doubled over two years.
The Nevada Gaming Commission (NGC) recently said it will delay licensing Diller, 80. That’s pending an inquiry by the Nevada Gaming Control Board (NGCB) into options trades he and two associates made in Activision Blizzard (NASDAQ:ATVI) prior to a January takeover offer by Microsoft (NASDAQ:MSFT). Diller said the trade was no more than a “lucky bet.”
In the letter to investors, Levin doesn’t mention specific ideas or plans IAC is pushing for at BetMGM or MGM. Nor does he comment on MGM’s recently announced $607 million takeover offer for Swedish online casino and sportsbook operator LeoVegas. More broadly, Levin says a new valuation regime in public markets creates opportunities for IAC.
“If the current valuation framework persists as we expect (years, not months), companies will eventually accept their new valuation reality, and IAC will have opportunities, for the first time in a while, to buy control positions in growing companies which still have something to prove,” he said in the letter. “We’ll be able to make bets on superior business models and management teams without having to make bets on future valuation multiples.”
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