Asian investment firm urges MGM China share sale to finance fresh Entain bid

Asia-based investment firm Snow Lake Capital has called on MGM Resorts to divest 20% of its stake in MGM China to external Chinese investors to jumpstart a fresh bid for Entain. In a six-point open letter to the US casino operator, Snow Lake claimed a sale to a “leading Chinese consumer internet or travel and leisure company” would be in the long-term best interests of the firm. Snow Lake, which manages funds accounting for 7.5% of shares in MGM China Holdings Limited, is the largest public shareholder in its China-focused business. MGM Resorts owns a majority stake in the business. “We believe such a transaction will create a win-win transaction for all parties involved and deliver significant shareholder value to both companies,” Snow Lake said. Addressing MGM’s recent £8.09bn takeover bid for FTSE 100 firm Entain, Snow Lake affirmed its approval of the deal, alongside MGM’s largest shareholder IAC/InterActiveCorp. However, it claimed the share sale would give MGM “financial flexibility” to pursue greater M&A, including a potentially increased offer for Entain. “We think an acquisition of Entain makes tremendous sense for MGM Resorts International as the US online market represents a key long-term growth opportunity,” Snow Lake wrote. “Entain’s in-house technology platform meshes very well together with MGM Resorts International’s prime resorts assets and its 34 million strong M life Rewards database. “The proceeds from reducing the MGM China stake will provide MGM Resorts International with much-needed cash to continue to aggressively pursue the M&A and reduce the potential dilution MGM Resorts International shareholders will face. “With a successful deal, MGM Resorts International can position itself well in a secular growth market,” Snow Lake added. Earlier this week, Entain rebuffed an initial takeover bid from US JV partner MGM saying it “significantly undervalued” the firm and its long-term growth prospects. Snow Lake further suggested a share sale to an external Chinese investor would bring significant non-gaming resources to both MGM China and Macau, which is a “crucial factor” in retendering for its Macau licence in 2022. The asset management specialist suggested that any failure to win a further Macau licence would be “disastrous” for both MGM China and parent company MGM Resorts. External investment in the business, the firm claimed, would unlock value for all MGM China shareholders and provide capital to finance its ambitions to open an integrated resort in Osaka, Japan. In response, MGM Resorts issued a statement welcoming the “continued constructive engagement” with MGM China shareholders but would not be drawn on a potential share sale. “MGM Resorts remains committed to Macau and will continue to take actions that are in the best interests of its shareholders and stakeholders,” the firm said.