This could be the year of interesting happenings in the relationship between Barry Diller’s IAC/InterActiveCorp (NASDAQ:IAC) and MGM Resorts International (NYSE:MGM), according to some analysts.
In a note to clients today, JPMorgan analysts Cory Carpenter and Doug Anmuth restart coverage of the internet and media conglomerate with a “buy” rating and $175 price target. They call the value of the sum-of-the-parts of the stock “compelling.”
IAC is a sum-of-the-parts story that we believe is very compelling at current levels, with investors essentially receiving the Dotdash Meredith digital biz at ~11x earnings before interest, taxes, depreciation and amortization (EBITDA) and all of IAC’s other stub biz’s for free,” said the analysts.
IAC took a 12 percent stake, then valued at $1 billion, in MGM Resorts in August 2020. As a percentage of MGM shares outstanding, IAC is by far the casino operator’s largest shareholder, well ahead of the 9.1 percent controlled by fund issuer Vanguard.
Light on Details Regarding IAC MGM Plans
The JPMorgan analysts don’t directly speculate as to what IAC’s plans are for its investment in MGM. But they do note other initiatives are possible, and there’s likely more to come beyond simply being a passive investor in the largest operator on the Las Vegas Strip.
Diller’s company isn’t a passive investor. It has a history of investing in and buying internet-based businesses, helping those companies grow while monetizing its own stakes, and in some cases, spinning those firms out to unlock value. It did just that with online dating site Match.com and Vimeo.com, among others.
At the time IAC revealed its investment in MGM, the former made clear it was making a bet on the latter’s internet business — BetMGM — while acknowledging the potential for rebounds at land-based casinos was a sweetner.
Some analysts believe that given IAC’s track record of success with internet businesses, including ANGI Homeservices, Expedia, Match, and Ticketmaster, the firm’s investment in MGM isn’t just an endorsement of the operator. It’s a vote of confidence for the broader online gaming industry.
The bet has paid off handsomely for IAC. MGM stock has more than doubled since August 2020, and IAC’s stake is worth $2.6 billion today.
As for how IAC could affect change with its MGM investment, BetMGM is an obvious starting point. Diller’s company was supportive of the casino operator’s effort to acquire Entain Plc (OTC:GMVHY) — its BetMGM partner — for $11.06 billion in January 2021.
IAC offered to pony up another $1 billion in exchange for more MGM equity to bring the Entain deal across the finish line. However, the British bookmaker ultimately rebuffed the proposal as inadequate, and MGM declined to make a higher bid.
Last September, DraftKings (NASDAQ:DKNG) made a run at Entain, ultimately floating an offer that was more than double MGM’s. That deal also fell apart, but it served as a reminder that MGM would like to gain full control of BetMGM.
Amid the DraftKings hoopla, speculation swirled that MGM could get control of BetMGM by proposing an initial public offering (IPO) or simply buying out Entain — endeavors IAC could assist with. However, neither IAC nor MGM have commented publicly that they are working on such transactions.
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